- 3Q14 in line, with revenue down 46% YoY and net profit, 55% YoY.
- Order drought and project delays could continue for more quarters.
- Maintain HOLD & SGD1.07 TP, pegged to 25x FY16E P/E. For sector exposure, we still prefer HanKore and SIIC.
3Q14 results remained weak as the market expected. Revenue was down 46% YoY to SGD101.0m and net profit, 55% to SGD11.3m. 9M14 revenue dropped 40% YoY while 9M13’s core net profit of SGD51m morphed into SGD27m losses in 9M14, excluding divestment gains. We are looking at SGD36m core net loss (before coupon payments on perpetual securities) for FY14E. The weakness stemmed from a smaller work load after the completion of Tuaspring and delays in Dahej Spring’s commencement in India.
Cautious business outlook
Hyflux expects continued weakness in global capital spending on new water projects in 4Q14. It is still actively looking for such projects globally but we think major contract wins are unlikely in the next 1-2 quarters. Financial close of the Dahej Spring project has been delayed by a few quarters though management expects completion in FY15.
Maintain HOLD
Maintain HOLD given no near-term catalysts. We could turn positive on major order wins and more asset recycling. For now, no change to our EPS or SGD1.07 TP, set at 25x FY16E P/E. This is comparable to our target for its closest peer, United Envirotech (HOLD, SGD1.44). For sector exposure, we still prefer HanKore (BUY, TP SGD1.14) and SIIC (BUY, TP SGD0.2).
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