Hyflux: A bigger victory in MENA

Going bigger and faster in MENA. The MOA is to develop in Libya (1) one 500,000m3/day capacity desalination plant in Tripoli, and (2) one 400,000m3/day desalination plant in Benghazi. Compared to Hyflux's biggest win in Algeria ? 500,000 m3/day in Magtaa, these potential contracts totaling 900,000 m3/day is almost twice as big in terms of capacity. It is anticipated that Hyflux will undertake the EPC portion while the 49/51JVCOs with its state-owned Libyan partner would be responsible for O&M throughout the 25 years concession period.

Projects worth S$1.1b potentially. While financial details are still in the works, we estimated these contracts could add S$1b to Hyflux's EPC orderbook, which is currently about S$700-800m. Assuming financial close for both projects are completed by 2010, projected completion duration of 36 months implies that Hyflux's earnings visibility will be extended to 2013.

Upgrade to Buy, TP S$2.82. We have raised FY10 forecast marginally in anticipation of minor contribution next year when the contracts are officially awarded. In addition, the expected receipts from these projects have also boosted DCF value of Hyflux's BOT projects. Consequently, our SOTP fair value was raised to S$2.82, translating to 24x FY09 PE, which is still below historical average PE of 26x.

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