• A sign of things to come?
• Increased activity from 2H onwards
• Re-enter around S$0.80 or better

Small project in Myanmar

Recently, Yoma Strategic Holdings announced the opening of a potable water plant at Pun Hlaing Gold Estate, in Myanmar, where the development is said to be the first in the country to have its own water treatment plant. Yoma revealed that Hyflux Ltd was the designer and technology provider for the potable water project, which utilizes Hyflux’s proprietary Kristal ultrafiltration and reverse osmosis technologies for brackish water. Although the project is quite small with a treatment capacity of 1k m3/day, we think that there could be more opportunities for the two companies to cooperate on future projects that Yoma may undertake in Myanmar.

QIWP will be the main catalyst

Meanwhile, in the nearer term, the starting of full-scale development of Qurayyat Desalination (QIWP) project would be the more immediate catalyst for Hyflux. As a recap, Hyflux was formally awarded the US$250m project recently, where wholly-owned subsidiary Hydrochem (S) Pte Ltd will carry out the construction work (worth US$210m). As the project is expected to be completed by mid-2017, we expect the EPC revenue to be split between FY15 and FY16, with a slightly heavier 60% weightage in FY16. Also note that management has recently guided for increased operational activities in the second half; this as a result of 1) ramp up in Magtaa Desalination Plant, Algeria; 2) commissioning of Tuaspring Power Plant, Singapore; and 3) fullscale development of QIWP, Oman. Another potential catalyst could be the financial close of the much-delayed Dahej project in India.

Share price languishing post weak 1Q results

But until these activities kick in, we suspect that the group could face another pretty lackluster quarter ahead. In any case, the company’s share price has corrected further to around S$0.835 post its weaker-than-expected 1Q15 results recently. As mentioned in our report on 15 May, although we are maintaining our HOLD rating and DCF-based fair value of S$0.96, we believe that investors may consider taking some profit and re-entering around S$0.80 or better between now and 2H15.

Source: OCBC Research - 21 May 2015