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Riding On the World’s Water Crisis

80px-Drinking_water Our Earth’s surface is made up of 70% water, but only 1% is made up of freshwater that feeds the world’s water needs. According to a report by World Health Organisation, due to a severe lack of freshwater, more than 3.4 million people die each year from water, sanitation, and hygiene-related causes. Nearly 99% of these deaths occur in the developing world.

Here in Singapore, due to a shortage of fresh water, the government has been on a quest to build up a diversified and sustainable water supply. What are some of the stocks listed on the Singapore Exchange involved in the water industry that can help alleviate the water crisis plaguing Singapore and the world?

The first company is Sembcorp Industries Limited (SGX: U96). Sembcorp is a multinational conglomerate involved in various industries including the marine sector, utilities sector and urban development. Under the utilities sector, it provides industrial water and wastewater treatment, municipal water and wastewater treatment, water reclamation and desalination.

Sembcorp’s revenue from Financial Year (FY) 2003 to 2012 increased at a compounded annual growth rate (CAGR) of 9.1%. Its net profits increased at 11.4% per annum during the same period. Its gross profit margin and net profit margin were at 13.5% and 7.4% respectively for FY 2012. Its ROE was at 16.7% for FY 2012. Sembcorp is trading at a PE of around 12.

The next company featured is Hyflux Limited (SGX: 600). Hyflux provides a wide range of services in water and renewable resources like seawater desalination, water recycling, wastewater treatment and portable water treatment.

Hyflux’s revenue from FY 2003 to 2012 increased at a CAGR of 26.7% with net profit increasing at CAGR of 7.3%. The gross and net profit margin were at 22.6% and 5.4% respectively for FY 2012. Its ROE stood at 7.9% for FY 2012. Hyflux is trading at a PE of approximately 28.

The last company is Boustead Singapore Limited (SGX: F9D). Boustead is involved in several different industries including oil & gas, real estate, and water & wastewater engineering. The vast experience of the company include the delivery of more than 800 industrial and municipal water and wastewater treatment plants globally.

Boustead’s revenue from FY 2004 to 2013 increased at a CAGR of 9.5%. Its net profits increased at a CAGR of 22.3%. The gross profit margin and net profit margin were at 34.6% and 15.9% respectively for FY 2013. Its ROE was at 27% for FY 2013. Boustead is trading at a PE of about 8.

Summing It Up

According to the United Nations, by 2025, an estimated 1.8 billion people will live in areas plagued by water scarcity. These companies will have strong growth potential if they manage to ride on the wave of water scarcity afflicting the world.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.  Motley Fool Singapore contributor Sudhan P owns shares in Boustead.