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.