Hyflux Ltd’s Third Quarter Earnings: Revenue and Profits Are Drying Up

Headquartered and listed in Singapore, Hyflux Ltd. (SGX: 600) is a leading fully-integrated provider of water and power management and innovative environmental solutions with a footprint across Asia and Africa.

In Singapore, the company actually built the first water recycling plant here in addition to two other seawater reverse osmosis (SWRO) desalination plants.

Hyflux released its third-quarter results yesterday evening. Let’s take a look at how it fared.

The basic numbers

On a year-on-year basis, quarterly sales slumped by 46% to S$101 million due to a slowdown in orders. Consequently, Hyflux’s net profit also got slashed by 55% to S$11.3 million. The company attributed the top-line decline to “timing of project commencement in FY2014 [financial year ending 31 December 2014].”

As at 30 September 2014, Hyflux’s net gearing ratio (a measure of how indebted the company is) of 0.41 is a significant improvement from the ratio of 1.15 seen at the end of 2013.

Hyflux’s improved balance sheet has come on the back of a stronger cash flow performance, though it must be noted that the word ‘better’ is used in a relative sense – Hyflux’s cash flow performance is still poor in an absolute sense. Here’s how the company’s cash flow statement for the quarter looked like:

  1. Lower cash burn from operating activities of S$46.7 million versus S$137.2 million a year ago
  2. Cash inflow from investing activities of S$8.5 million versus an outflow of S$17.1 million a year ago; Hyflux  had managed to sell off some assets during the quarter
  3. Cash flow from financing decreased from S$107.9 million a year ago to S$84.3 million due to taking on lesser borrowings.

Outlook and Valuation

After seeing big drops in both its top- and bottom-line in the third quarter, it seems that there’d be no reprieve for investors going forward anytime soon. The following are management’s comments on Hyflux’s business outlook given in the third-quarter earnings release:

“[Hyflux] remains cautious on its business outlook given the mixed global economic conditions and expects the last quarter to remain slow. The delay in the connection of the national power grid to the Tuaspring power plant will continue to have operating cost implications over the next few quarters. While the outlook for the global water industry is positive, the momentum of municipal projects being made available for tender has been slower than anticipated in the past year.”

Hyflux last changed hands at S$1.005 per share yesterday and ended the quarter with a price-to-earnings ratio of 9.7. It also sports a dividend yield of 2.3%.

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