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Maybank Kim Eng Research 2015-07-02: Hyflux - Partially divesting China assets. Maintain HOLD with TP $0.96. Prefer China Everbright Water (BUY, TP$ 1.17).

Partially divesting China assets 

  • Plans to divest five water plants in China for CNY890m. Factoring in divestment gains, our FY15 forecast improves from SGD11m loss to SGD16m profit. 
  • Valuations appear fair. Astute move, in our view. 
  • Maintain HOLD & SGD0.96 TP, at 25x FY16 EPS. Prefer CEWL, followed by SIIC & UENV, in that order. 


What’s New 

  • Hyflux has set up an investment holding company with China-based Tuspark Technology, which is backed by Tsinghua University. Hyflux will eventually divest five of its wholly-owned China water plants to the holding company. These plants have a total capacity of 265k tonnes/day. The total consideration would be CNY890m. 
  • Assuming completion of this transaction this year, there could be a one-off divestment gain of SGD42m and net-cash inflow of SGD146m in FY15, in our estimation. 

What’s Our View 

  • The CNY890m consideration implies 1.3x P/BV or CNY3,358/tonne. We think this is fair against recent transactions. 
  • We also believe this is a strategic move as Hyflux can leverage Tsinghua University’s industry expertise and local connections to improve its China operations. 
  • Currently, Hyflux owns 29 water-treatment plants with a total capacity of over 1.3m tonnes/day. Outside the above five, the remaining 24 are owned under Galaxy NewSpring. This is its 50:50 JV with Japan’s Mitsui Group. 
  • We believe Hyflux will work towards divesting its remaining 24 plants in the future. 
  • Factoring in divestment gains, our FY15 net profit improves from a loss of SGD11m to a profit of SGD16m. FY16-17 numbers are largely unchanged. 
  • Maintain HOLD given still-limited visibility in its core markets. 
  • We keep our TP at SGD0.96 or 25x FY16 P/E. This is about a 10% discount to its closest peer, United Envirotech (BUY, TP SGD1.93). 
  • In the sector, we prefer China Everbright Water (BUY, TP SGD1.17), followed by SIIC (BUY, TP SGD0.26), then UENV.

(Wei Bin)


Source: http://www.maybank-ke.com.sg




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