Arab Spring shrinks Hyflux's 2011 earnings

Water treatment company says cash, order book will help it survive drought

By KENNETH LIM 

PROJECTS that dried up during the Arab Spring last year shrank Hyflux's profit 40 per cent in 2011, but the water treatment specialist expects its cash pile and order book to help it to weather the drought.

The demand is still there. It's just that it's a timing issue, and Hyflux is definitely in the right place and the right sector to benefit. - Olivia Lum, Hyflux CEO

'We have seen our jobs in Libya evaporated, China fiscal and monetary tightening measures and also the euro crisis - all these have contributed to a low showing of the number of projects on the market,' Hyflux chief executive

Olivia Lum said at a results briefing yesterday.
'We have not seen such a dry year before (compared to 2011) as far as seawater desalination projects are concerned,' she added.
Net profit attributable to shareholders fell to $53 million, or 4.3 cents per undiluted share, for the year ended Dec 31, 2011.
The average consensus estimate was for earnings of $47.7 million and earnings per share of 5.6 cents, according to polls by Bloomberg.
Net asset value per share was 60.6 cents as at end-2011, up from 58.6 cents the year earlier.

Singapore-based Hyflux recommended a cash dividend of 2.1 cents per ordinary share.

Maybank Kim Eng analyst James Koh said the results met his expectations.
'The company is very well positioned both in terms of their technical know-how and in terms of their capabilities, in terms of their balance sheet,' he said.
'But the external factor is, I think, still quite challenging for them from an order win and order book kind of perspective. The contracts that went away from the Middle East are not going to be so easily replaced,' he added.

Unrest in the Middle East and North Africa (Mena) severely cut turnover from the region, while existing projects neared completion. Sales from the region fell about two-thirds.

Tightening policy in China also trimmed sales in the country by 6.7 per cent.

Sales from other markets and Singapore, where Hyflux clinched the $890 million Tuaspring Desalination Plant project, was the only region of growth.

Ms Lum said that going forward, Hyflux will prefer to undertake both the power and water aspects of suitable projects that arise in the future, using its experience in doing the same thing for Tuaspring.
Power and water plants enjoy key synergies, she explained.

Hyflux's order book currently stands at $1.87 billion, with the bulk of it coming out of Singapore and China.

The company also has about $662.4 million in cash, on the back of long- term capital raising in 2011.
That has helped to mostly finance the Tuaspring project, said Hyflux chief financial officer Cho Wee Peng.
Ms Lum said the situation in the Mena region was showing early signs of improvement, and while pockets of opportunity exist, the outlook there remains uncertain.

Asia is expected to be the main growth driver in the near term.

The global outlook also remains uncertain, while higher operating and financing expenses in Singapore could raise short-term costs.

But Hyflux's balance sheet, order book and diversified exposure across three key regions give Ms Lum modest optimism about the year ahead.

'The projects are delayed, but they have not vanished,' Ms Lum said.

'The demand is still there. It's just that it's a timing issue, and Hyflux is definitely in the right place and the right sector to benefit.' she added.