How China's credit tightening may have spooked Hyflux

Share price plunged 13.1% to S$1.19.

According to OCBC Investment Research, Hyflux Ltd recently saw a massive correction in its share price, plunging nearly 13.1% from a high of S$1.37 on 10 Jun to a low of S$1.19 on 24 Jun. Besides the slowing economic growth in China, sentiment is also likely spooked by the recent reports of credit tightening in the mainland – this alone probably resulted in the sharp 6.7% drop on 24 Jun.

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But concerns may be overwrought. No doubt these concerns are valid, given that waste water treatment projects require very large capital investments, we believe that they may be overwrought.

For one, industry watchers believe that water scarcity and pollution of water sources are two of the most serious problems for China; and the government is likely to put in more effort to tackle these issues.

Secondly, Hyflux – being an “international” company, should be able to access other sources of funds besides the usual “local” project financing. And this may work in Hyflux’s favour when it comes to bidding for projects against local Chinese companies.

Progressing well on Tuaspring project. Separately, the company’s Tuaspring desalination project is progressing along nicely. Management notes the desalination portion is on track to deliver water by 3Q13.

It had also recently signed a US$138.7m export credit financing agreement with KfWIPEX Bank GmbH to finance the purchase of key components for the 411MW combined cycle gas turbine plant, where construction work is also progressing well (likely completed by end 2014).