HWT – CS

Second asset injection approved by unit holders

● We recently met HWT’s management on its second asset injection, which was passed at its EGM on 16 December.

● With a total purchase price of S$89.7 mn, the five new plants would boost the total capacity by 38% to 580,000 cu m/day. In the circular, management released a more conservative set of projected volume than the initial portfolio presented, in our view. Interest rate was lower with the interest rate swap. With a guided incremental DPU of 0.16 Scts, this brings FY09 DPU to 5.42 Scts.

● We raised our net profit forecasts by 3-65% (from a small base) over next three years to mainly reflect lower opex, lower net interest expense and FX gain, partly offset by lower volumes.

● More importantly, due to higher-than-expected adjustments (-FX gain and -other adj) to distributable income, we lowered our DPU estimates by 3-8%. Our resulting DDM-based target price is S$0.60 (from S$0.74) based on 10% WACC and 5% terminal growth rate (from 6%). The stock remains an attractive yield play, offering 13-15% yield within the water sector and Singapore market.