Hyflux - OCBC Securities 2015-09-16: Secures WTE project in Singapore.


Hyflux: Secures WTE project in Singapore 

 S$700m project for NEA 
 No material impact on FY15 financials 
 Upgrade to HOLD, 29% sell-down likely overdone 

Secures WTE project in Singapore 

  • Hyflux Ltd announced yesterday that it, together with partner Mitsubishi Heavy Industries (MHI), has been picked as the the preferred bidder by the National Environmental Agency (NEA) to develop a WTE (waste-to-energy) plant in Tuas under a DBOO (design, build, own, operate) scheme and to provide waste treatment services exclusively to NEA for a period of 25 years. 
  • Hyflux will construct the S$750m project by 2019; Hyflux, with a 75% stake, will undertake EPC works worth S$636m, while MHI (with 25% stake) will provide the technology. Both partners will jointly manage, operate and maintain the WTE plant over the concession period. 

No material impact on FY15 financials 

  • However, Hyflux says it does not expect the project to have a material impact on FY15 financials; we believe that the start date would likely be sometime in mid to late 2016. 
  • Still, we do see several positives. For one, the WTE plant will be located on a 4.8-hectare site next to the Tuaspring Integrated Water and Power Project; it will also be able to process 3,600 tonnes of waste per day and generate 120 MW of clean and renewable electricity, which should yield some operational synergies and also increase Hyflux’s overall energy generation capacity. 
  • Secondly, the project will replenish its dwindling EPC order book (last reported at S$1b as of end of 2Q15; but includes the long-delayed Dahej project). 

Price corrected 29% since our downgrade on 11 Aug 

  • After reporting a pretty “dismal” set of 2Q15 results, we opted to downgrade our call from Hold to Sell with new S$0.75 fair value; and since then, the stock price fell by some 29% to a new 52-week low of S$0.60 on 2 Sep. 
  • While we see the need to further pare our DCF-based fair value from S$0.75 to S$0.72 to reflect rising interest rate concerns, we believe that the recent sell-down may have been overdone. And with most of the bad news likely factored in, we upgrade our call from Sell to HOLD

Carey Wong | http://www.ocbcresearch.com/ OCBC Securities 2015-09-16
HOLD Upgrade SELL 0.72 Down 0.75