• US$250m project in Oman
• Likely FY16 impact
• Maintain SELL for now

LOA for US$250m Oman BOO project

Hyflux Ltd had on 19 Dec 2014 received a letter of award (LOA) to design, build, own and operate an independent water project (IWP) in Qurayyat, Oman, for an estimated US$250m. The Qurayyat IWP will be a seawater reverse osmosis desalination plant with a designed capacity of 200k m3/day; it is scheduled to commence commercial operations by May 2017 under a 20-year water purchase agreement with the Oman Power and Water Procurement Company (OPWP). The EPC portion of the project is worth about US$210m, while the O&M bit is worth about US$40m. However, Hyflux did not give a start date for the construction, as the award is still contingent upon satisfying certain conditions precedent (but these are not mentioned in the announcement).

No immediate impact expected

As such, the company does not expect the project to have a material impact on its FY14 results. Based on our understanding, the finalization of the contract could still take several quarters; hence, any impact is likely to be felt from 2HFY15 onwards, with bulk of the contract value to be recognized in FY16. While the company did not provide more details on how it would be financing the project, we expect it to be project financed as per their previous projects. We also note that Hyflux has ample cash balance of S$528m (as of end Sep 2014); this after divesting non-core assets like HIC and two subsidiaries in 2014.

SELL – limited upside from here

Meanwhile, the company’s share price tumbled to a recent intra-day low of S$0.71, even below our conservative S$0.75 fair value, as the delay to achieving financial close for its Dahej project in India as well as lack of new order wins continued to weigh on sentiment. Although the share price has since recovered by about 19% from that low, further upside may be limited as 4Q14 performance (and likely 1Q15) is likely to be slow. Maintain SELL with an unchanged S$0.75 DCF-based fair value.

Source: OCBC Research - 5 Jan 2015