Market Pulse: Hyflux (27 Sep 2011)

Market Pulse: Hyflux (27 Sep 2011)

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Hyflux: Paring fair value to S$1.81 - Maintain BUY

Summary: Since reporting a slightly muted set of 1H11 results in early Aug, Hyflux Ltd's share price has taken quite a tumble, falling some 23% to hit a low of S$1.50 yesterday, effectively pricing it at 13.6x forward PER. We believe that the sell-down over the past few weeks has been slightly overdone. Although Hyflux saw its forward PER drop to around 10x during the global financial crisis, we note that the situation is slightly different now. For one, the company's order book has improved significantly since then. Secondly, the demand for clean, potable water is likely to increase in China and MENA, raising the need for more water treatment and desalination facilities. Hence even in a downturn, we believe that the water industry should continue to be quite resilient, given that clean water is an essential commodity. That said, due to the lower overall market, we still see the need to pare our valuation peg from 22.5x to 18x (-0.5 SD from mean) blended FY11/FY12F EPS, bringing our fair value lower from S$2.26 to S$1.81. Maintain BUY. (Carey Wong)


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NEWS HEADLINES

- ECB said that the risks to euro zone growth are now 'substantially' to the downside due to continued deterioration in the economic environment.

- Commodity prices went on a roller-coaster ride in Asia yesterday amid efforts to contain Greece's debt crisis and save Europe and the world economy from another recession.

- Singapore's industrial production rose 21.7% YoY per cent in Aug, far exceeding market expectations, due to a 146% surge in pharmaceuticals output which offset a 21.9% fall in electronics.

- SGX is named as a potential suitor for London Metal Exchange (LME), together with CME Group and IntercontinentalExchange (ICE), according to an article in the Financial Times.

- Centurion Corporation said that it aims to be the region's premier builder and operator of workers' dormitories, housing some 100,000 beds in Singapore, Malaysia and China.

- IPO aspirants that have lined up to go public in Singapore and Hong Kong this year are turning hesitant for now as investors' appetite for stocks vanishes and the window for new share-sales closes.