Hazy future for Hyflux due to thinning orderbook

The company’s 3Q10 performance exceeded expectations but outlook is dampened because of the project delay in Libya.

In a statement, DBS Group said Hyflux’s 3Q10 PATMI of S$19m (+5% y-o-y) met consensus (S$25m) if excluding S$7.9m of forex losses but trumped the estimate of S$14m because of an earlier than expected rebound in China industrial projects that were put on hold during last year’s crisis. The more profitable industrial business lifted gross margin to 47.8% from 35.8% in 3Q09. “Nevertheless, these were negated by higher costs and forex losses, which led net margin to end a shade lower at 13.8% compared to 14.3% in 3Q09. Sales grew 9% to S$137.5m. A 1-for-2 bonus issue was proposed to improve share liquidity,” the bank said.

MENA also formed 62% of Q3 sales, down from 78% in 1Q10. The decline was offset by higher % contributions from China due to a revival in industrial projects; and Singapore with the commencement of Jurong Island MBR and Tembusu. DBS said, “Near term, we expect contribution from MENA to continue declining given the lack of new contracts and the indefinite delay in Libya. China looks promising with funding support from Mitsui and JGC. In Singapore, Hyflux’s lowest bid for Tuas II raises its chance to win the desalination contract, worth S$400-450m, but management warns of keen competition. The outcome is due early 2011.”

The bank is maintaining its “hold” rating on Hyflux stocks.