Hyflux Water Trust Results Highlights

Earnings highlights. 2Q revenue fell 60% YoY to S$6.6m, due to the lack of construction revenue. This has no impact on the bottom line or distributable income. Moving forward, the manager says construction revenue will become an insignificant part of HWT's revenue as HWT only intends to acquire completed projects. If construction revenue is stripped out, 2Q adjusted revenue rose 76% to S$6m (O&M and finance income only). Net operating income rose 27% to S$2.7m.

Unitholders will receive 2.56 S cents for 1H09, versus 2.17 S cents a year ago (+18% YoY). This is after the subordination to the sponsor, who will receive 1.77 S cents per unit (no distributions received a year ago).

Outlook. Utilization was flat QoQ at 44% as HWT's capacity grew but investments in industrial parks slowed. The manager said that the unused capacity will stand HWT in good stead when the Chinese economy "powers back to life again". HWT said it has seen signs of recovery in the PRC market but the manager does not expect this to translate into a "sudden surge" in the next two quarters. HWT is positive on the fundamentals for the PRC water sector in the mid-to-long term.

Growth depends on credit availability. HWT says that, from a Singapore perspective, the credit market seems to be easing but not on a broad basis. HWT's bankers are telling the trust that debt is available to sovereign institutions and "super-blue-chips". But the bankers say credit availability should improve in 2H09. From a PRC basis: there is still a lot of liquidity both generally and for the water sector. Currently, HWT's acquisition plans are on a two-year framework, but this could be accelerated if the market improves.

HWT has guided for a 2H09 DPU of 2.86 cents per unit. This is equivalent to an annualized trailing yield of 8.4%.

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