February 24, 2012

Hyflux

CIMB Research on 23 Feb 2012

FY2011 core net profit of S$46 million was 30 per cent ahead of our estimate. Despite the gains from the sale of PPE and some effects of the lower tax rate, this set of results came off as good.

Contributions from Hyflux's Tuas II desalination project made up for the lost ground in Q4 2011. FY2011 earnings are a reflection of the near completion of major projects in Mena, impact of Arab Spring and lower divestment activities. The group's work on the S$88 million expansion of six plants in China has added some cheer. The group is also active in bidding for various projects in the Mena region.

Results were good, but we now focus on the sustainability of the share price. We find it hard to remain bullish as volatile earnings and major capex could add to selling pressure; at least until major positive catalysts emerge. Share price has outpaced market. Downgrade to 'trading sell' from 'neutral'. We would turn more positive if we see substantial order wins.

TRADING SELL

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