• Top-line bumped up by S$42.5m
• Risk of more disappointments
• Downgrade to SELL

Another dismal quarter after adjustments

Hyflux Ltd reported yet another dismal quarter last Thursday; although reported revenue was up 18% YoY and 57% QoQ at S$94.8m, it was boosted by the inclusion of S$42.5m of “revenue” arising from the sale of five water treatment assets in China. Excluding the likely one-off asset sale, we estimate that core revenue was actually down 35% YoY and 14% QoQ at S$52.3m.

Likewise, reported net profit fell 58% YoY (but +361% QoQ) at S$26.0m; adjusted net profit would have come in around negative S$16.5m. Reported 1H15 revenue fell 8% to S$155.2m, while net profit tumbled 68% to S$31.6m; adjusted revenue was much lower at S$112.7m, meeting just 25% of our full-year forecast, while core net profit likely came in at – S$36.8m (versus of our forecast of S$21.4m for FY15). Hyflux declared an interim dividend of 0.7 S cent/share, unchanged from last year.

No change to outlook in 2H15

As before, company expects to see 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 (expected to be operational in early 2016); and 3) full-scale development of QIWP, Oman (likely to be front-end loaded due to purchase of equipment).

Management adds that the group is still actively pursuing opportunities for municipal and industrial water projects in the Middle East, Africa, Asia and the Americas. At the same time, it continues to explore potential divestment opportunities in line with its asset-light strategy. Meanwhile, company’s order book stands at S$2939m, comprising of S$1010m of EPC projects (but includes Dahej project which is still no closer to achieving financial close) and S$1929m of O&M revenue (expected to be flow in over the next 20-30 years).

FY15 likely to be a wash out

Given the dismal showing so far, we suspect that more disappointments could be in store for the rest of the year. We are paring our FY15 revenue estimate by 18% and core earnings by 13% (FY16 by 18% and 22% respectively). And to reflect rising interest rates, our DCF-based fair value also drops from S$0.96 to S$0.75; we also downgrade our call from Hold to SELL.

Source: OCBC Research - 11 Aug 2015