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Can Hyflux Ltd Transform Itself Into A Consumer Company?

Hyflux Ltd (SGX: 600), one of the few companies in Singapore’s stock market that deals with water-related technologies and facilities, released its latest earnings results just two weeks ago.

The results were for the first-half of 2016. During that period, the company’s profit fell drastically by 69% to S$9.9 million despite seeing its revenue more than triple from S$155 million a year ago to S$508 million.

Due to the nature of its business model, with a large percentage of revenue coming from engineering, procurement, and construction (EPC) jobs, Hyflux’s revenues and profits have been volatile. For investors, this presents a challenge as it is difficult to forecast the profitability of the company.

But, all these might change in the future as Hyflux enters the consumer staples industry by selling bottled drinking water. Production of the company’s ELO-branded bottled drinking water is expected to start in Singapore in the third-quarter this year.

Back in November 2015, Hyflux had bought a minority stake in Kaqun Europe, a consumer water technology company. The deal also involved Hyflux and Kaqun Europe working together in a 70-30 joint venture to manufacture, sell, market, and distribute the ELO brand of drinking water in the Asia-Pacific, Middle East, and Africa regions.

ELO is marketed as a premium bottled-water brand with health benefits. According to its website, ELO is a “special oxygen-rich water that nourishes the body from within…” This bottled drink does not come cheap though – ELO’s website listed a price of S$63.80 for just six 240ml bottles.

From its brand positioning, ELO might not be a mass market product but instead, a niche health product. Hyflux chief executive Olivia Lum has commented that she is optimistic about the potential of the ELO business.

This marks a new direction for Hyflux and has the potential to push the company toward a more consumer-driven business model rather than its current project-based B2B model. But, given the niche position of the product and Hyflux’s lack of branding and distribution experience, it is still too early to know how successful this new venture might be for the company.

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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 writer Stanley Lim doesn't own shares in any companies mentioned.