Hyflux, the next big thing?

Hyflux have faced stiff competition in the water market. They specialised in Seawater Reverse Osmosis(SWRO) plants which due to high expenses, may not be the most preferred choice.

However, Hyflux did not give up hope on the China market, which it seen to contain huge potential to its business, managed to sign two memoranda of understanding (MOU) in China.

"Hyflux said in a statement it had signed two memoranda of understanding (MOUs) with the governments of Chuxiong and Qujing.

The total investment value is estimated to be around 1.2 billion yuan (S$240 million) for the projects in Qujing and less than 2 billion yuan for the projects in Chuxiong.

The projects covered under the MOUs include developing water recycling, wastewater treatment and potable water treatment plants."

Source: http://www.straitstimes.com/breaking-news/money/story/hyflux-signs-mous-develop-water-and-environmental-projects-yunnan-20130404

The table below shows that other companies are able to penetrate China better than Hyflux. The major revenue from Hyflux is from Singapore.

Source: http://www.sharesinv.com/articles/2012/03/02/can-hyflux%E2%80%99s-tap-continue-to-flow-beyond-the-home-turf/

Hyflux generally has grown in terms of revenue and net profits but however, despite the high expenses and competition from the water industry, the outlook for Hyflux doesn't seem very favourable. Furthermore, the issuance of preference a few years back with the guaranteed returns of 6% may give Hyflux a tougher time to refinance or buy back the debts.

Hyflux's high debt position remains a challenge to its future. Once the Tuas Desalination Plant in Singapore is operational, Hyflux may see a brighter light with more profits coming in from Singapore. With adequate funding, Hyflux may be able to better finance its debts and grow healthily.

A "HOLD" rating will be given due to high debts and expenses incurred by Hyflux.

Sneak peak at the Telecom Sector

Generally, telecom sector stocks like Starhub, Singtel and M1 have grown quite well in the recently. Let's look at their performance for the past 6 months.

Starhub increased from 3.68 to 4.35 in the last 6 months, up 18%

M1 Ltd, owned by Telecom Giant Axiata Group Berhad went up from 2.61 to 3.17 in the last 6 months, up 21%.

Temesek Holdings owned Telco, Singtel, went up from 3.21 to 3.77 in the last 6 months, up 17%. It last announced to set up a subsidary into the newly open economy, Myanmar but still pending for further updates. Myanmar could be seen as a major growth benefactor for singtel

Corporate Rating for Thai Bev

Standard & Poor had remove Thai Beverage from its credit watch. Its rating had also been changed from BBB to BBB- with negative outlook.

According to S&P website:
‘BBB-‘—Considered lowest investment grade by market participants.

The first reason was due to the high cost of the F&N acquisition which amount to about US$11.2Bn. The company debts are expected to remain high and cash flow to remain adequate. 

The second reason was that TCC Assets hold about 61% of F&N and no plans were known as to how the debt will be financed.

With that being said, F&N still remains strong in its beverage sectors owning 100 PLUS, Fruit Tree, Seasons and Ice Mountain.

Drinks made up majority of profits in coffee shops and will continue to grow because people will need to quench their thirst. This stock poses strong upside potential and will possess the financial strength to handle the debts.

Source: http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_901BDC35F61B0FFB48257B4A004547E9/$file/Corporate_Rating_by_SP.pdf?openelement

Source: http://blogs.wsj.com/deals/2013/04/12/thaibevs-fn-deal-prompts-credit-rating-downgrade/