Hyflux Ltd’s Latest Earnings: Revenue Soars 39%, But….

Hyflux Ltd (SGX: 600) had released its full-year results for 2015 yesterday evening.

Headquartered and listed in Singapore, Hyflux is a water treatment specialist with a track record that includes Singapore’s first water recycling plant and some of the world’s largest seawater reverse osmosis desalination plants in Algeria, China, and Singapore. The company had also recently entered the energy infrastructure field with some energy projects in Singapore.

With that, let’s take a look at Hyflux’s earnings.

Financial highlights

The following’s a quick rundown on the latest financial figures from Hyflux:

  1. Revenue in 2015 had jumped by 39% year-on-year to S$445.2 million. The boost in revenue was primarily because of contributions from the Qurayyat Independent Water Project in the Sultanate of Oman.
  2. But, Hyflux’s profit attributable to shareholders for the year had fallen by 28% to S$41.3 million.  A big reason for the decline is Hyflux’s lower levels of divestment activity in 2015 as compared to 2014.
  3. Interestingly, after adjusting for S$49.7 million in dividends that Hyflux’s perpetual preference shares and perpetual capital securities are entitled to, the firm’s earnings per share for owners of its ordinary shares in 2015 would be a negative 1.05 cents, down from a positive 1.66 cents in 2014.
  4. Cash flow from operations in 2015 came in at a negative S$44 million. With capital expenditure of S$27.6 million in the year, Hyflux had generated negative free cash flow of S$71.6 million. But, this is still a big improvement over 2014 when free cash flow was a negative S$238 million.
  5. As of 31 December 2015, Hyflux had S$314 million in cash and equivalents and borrowings of S$1.42 billion, translating into a net-debt position of S$1.11 billion. This also gives rise to a net gearing ratio (net debt over equity) of 0.85. Hyflux’s balance sheet has weakened considerably from end-2014 when it had a net gearing ratio of 0.51.
  6. Hyflux had declared a final dividend of S$0.01 per share, down from the S$0.016 per share seen a year ago. All told, Hyflux’s total dividend in 2015 is S$0.017 per share, a 26% decline from the S$0.023 per share dividend seen in 2014.

To sum up, it seems that Hyflux had demonstrated healthy revenue growth, but investors may want to keep an eye on potentially problematic areas like its falling earnings, lack of cash flow, and weakening balance sheet.

Business highlights

On the business progress of Hyflux, there were a number of important events in 2015 to note:

  1. Signed a 20-year agreement on March 2015 to supply desalinated water to Oman Power and Water Procurement Company SAOC via the Qurayyat Independent Water Project, which Hyflux will design, build, own, and operate.
  2. A consortium comprised of Hyflux and Mitsubishi Heavy Industries had inked a 25-year agreement with Singapore’s National Environment Agency (NEA) on October 2015. The deal will see the consortium provide 3,600 tonnes of daily incineration capacity. This capacity will come from Singapore’s sixth and largest TuasOne Waste-to-Energy Plant, which will be developed on a design-build-own-operate model, just like the Qurayyat Independent Water Project.
  3. Purchase of a 50% stake in PT Oasis in Indonesia and 30% stake in Kaqun Europe. These investments were made by Hyflux to grow its consumer segment for “a stable recurring income.”
  4. Sold its entire stake in five water and wastewater plants in China to Tuas Water Group Limited. Hyflux has a 25% stake in Tuas Water Group Limited and the company had made the sale as part of its capital recycling strategy.

A future outlook

In the earnings release, Olivia Lum, Hyflux’s executive chairman and chief executive, warned of several “short-term headwinds” to the company’s business, such as falling oil prices, slower growth in China, and volatility and lower liquidity in global financial markets.

But, she added that the company will still be forging ahead to bid for municipal and industrial projects in geographical areas like the Middle East, Africa, Latin America, and parts of Asia.

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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 James Yeo doesn’t own shares in any companies mentioned.