Hyflux - Seasonally weaker 1Q

1Q09 core net profit of S$5.1m (-11% yoy) came in within consensus and our expectations. 1Q is seasonally weaker for the group, and accounted for 6.9% of our FY09 forecast. The decline in profit was due to the effect of a tax credit recorded in 1Q08. PBT was up 22.8% yoy to S$6.8m in 1Q09. Construction of the Magtaa plant in Algeria has commenced and is scheduled for completion in 28 months' time. Our estimates are intact, target price unchanged at S$2.66, still based on SOTP valuation. Hyflux is well-positioned to weather the economic turmoil on the back of its municipal business, which should benefit from government infrastructure projects. Maintain Outperform.

Hyflux Ltd posted its 1Q09 results last night, with revenue seasonally weaker as expected; revenue fell 50.8% QoQ (down 1.6% YoY) to S$88.2m, while net profit tumbled 62.0% QoQ (down 11.5% YoY) to S$5.1m. Besides the usual disruption due to the long Chinese New Year holiday in China, its industrial sales there were also affected by the economic slowdown. Nevertheless, Hyflux continues to remain upbeat about the water industry, and about its prospects in both Algeria and China. Although management did not provide an update of its order book ? EPC jobs last stood at S$1.14b (end Dec 08), the ongoing projects to be completed should ensure that revenue and earnings see the seasonal uptick in 2Q09 and the rest of the year. As such, we are leaving our FY09 estimates unchanged despite 1Q09 revenue and earnings meeting just 14.4% and 8.3% of our full year estimates. And given the recent re-rating of the equity market, we correspondingly raise our valuation from 16x (trough) to 18x FY09F EPS and our fair value from S$1.87 to S$2.11. Maintain BUY.

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