• Core loss of S$72.3m
• Expects modest turnaround
• Upgrade to HOLD

Poor FY14 finish as expected

Hyflux Ltd ended FY14 on a pretty muted note as expected. Due to the lack of new sizable contract wins and the continued delay in trying to achieve financial close for the Dahej project in India, revenue fell 40% to S$321.4m. Although reported net profit came in at S$57.5m, up 31%, we note that it was boosted by several one-off items totaling S$157.8m. Otherwise, the company incurred a negative EBITDA of ~S$38.2m, and a core net loss of S$72.3m; this was due to the higher utility charges from Tuaspring Desalination Plant due to the delay in the national grid connection to its power plant. Nevertheless, the company has kept its final dividend unchanged at 1.6 S cents/share.

Tuaspring power plant likely operational in 2H15

Speaking of its Tuaspring project, management notes that it has been making progress in trying to connect up the 400mw power plant to the grid, and believes that the connection should be completed in 2H15. Hyflux is quite upbeat about its prospects once this project is completed; this as it can sell as much as 75% of its power to the grid, given that the desalination plant only needs about 50mw per day. While management believes the revenue contribution could be quite sizable, we note that the margin is likely in the low teens; but could provide a source of recurring income.

Oman project boost from 2H15 onwards

Management is also upbeat about the recent Qurayyat contract win, where it expects the US$210m EPC portion to start this year, given that the IWP is scheduled to start commercial operations by May 2017. Hyflux adds that it does not expect the project to face any delays in trying to achieve financial close, unlike the Dahej project. Nevertheless, we expect the Oman project to be more backend loaded, with the bulk of the revenue likely recognized in FY16.

Upgrade to HOLD with S$0.96 fair value

We now expect Hyflux to turnaround in FY15 versus a small loss previously; this also improves our DCF-based fair value from S$0.75 to S$0.96. Upgrade to HOLD.

Source: OCBC Research - 2 Mar 2015