Hyflux (600.SG) is +11.5% at $2.04, in heavy volume of 9.8 million shares, after winning what Credit Suisse calls “a breakthrough contract” for Singapore’s second desalination plant at Tuas, worth $890 million.
The house increases its 2011-2013 EPS forecast by 2%-11%, and raises its target to $3.00 from $2.80 due to the larger-than-expected size of the contract; it keeps its Outperform rating.
Based on its “conservative” estimate of 11.4% equity IRR, CS says the net present value of the project is $353 million or $0.41/share.
It notes, the first-year tariff of $0.45/cubic metre “is possibly the lowest ever offered for any desalination project, demonstrating that Hyflux is one of the few companies globally with the capabilities to offer low-cost solutions to meet increasing demand for water desalination.”
With management rebalancing its growth strategy to Asia, targeting China, Singapore, Australia and Indonesia as key growth markets to mitigate uncertainty in the Middle East, CS expects further contract awards in Asia to drive rerating of the stock.
Orderbook tips $2.06 cap N/T.
