Hyflux Water Trust posts $6.9m distributable cash

H1 figure is up 53% from before, translating to a DPU of 2.56cents

HYFLUX Water Trust yesterday reported distributable cash of $6.9 million for the first half of this year, up 53 per cent from first-half 2008.

This translates to distribution per unit (DPU) of 2.56 cents, except for units held by the trust’s sponsor, water treatment company Hyflux. Distribution per sponsor unit was partially waived to 1.77 cents to meet the trust’s projected interim DPU of 2.56 cents.

This is 18 per cent above the 2.17 cents distributed for H1 2008 and represents a yield of 3.9 per cent based on yesterday’s closing unit price of 65 cents. The trust distributes cash to its unit-holders every six months.

For the six months ended June 30, the trust’s total revenue fell 33 per cent to $20.7 million, from $31 million in H1 2008. Net operating income rose 72 per cent to $5.7 million for the half-year, yielding an after-tax profit of $5.1 million, 56 per cent up from a year back.

Q2 revenue fell 60 per cent year-on-year to $6.6 million, and the trust posted an after-tax loss of $1.2 million, versus a net profit of $2.2 million the year before.

The drop in revenue was due mainly to a 95 per cent drop in construction revenue to $0.6 million, as the construction of several plants was completed. Operating and maintenance and finance income grew 80 per cent to $6.1 million in Q2 2009 ended June 30.

Driven by stronger operating revenue, net operating income rose 27 per cent year-on-year to $2.7 million. ‘Unrealised foreign exchange losses from the revaluation of inter-company balances’ led to the $1.2 million net loss.

The trust’s cash and cash equivalents rose 20 per cent from end-March to $38.6 million at June 30, as operating activity generated more cash than was used to finance activities.

Gary Kee, chief executive of the trustee-manager, said: ‘Considering the very challenging economic environment, we are very pleased that Hyflux Water Trust has stayed resilient and met its distribution forecast for this half-year.’

The global water sector’s overall medium to long-term outlook remains strong, especially in China, the trustee-manager said.

Hyflux Water Trust, whose portfolio consists of 18 water plants operating under long-term concession agreements, said volume throughput rose marginally in Q2 from Q1 and is expected to remain resilient in H2.

It believes that it is on track to deliver projected DPU of 2.86 cents for the second half, which will mean a full-year DPU of 5.42 cents.

DPU secured by sponsor commitment

At a Glance
• Distributable cash generation of 1.15Scts per unit was in line with our projections
• Treatment volumes continue to be affected by slump in industrial output in China, utilisation rate down to 43%
• Sponsor’s commitment should ensure HWT delivers on its FY09 DPU projection of 5.42Scts
• Maintain BUY with TP S$0.56, FY09 DPU yield of 14.2%

Comment on Results

Distributable cash increased 15% q-o-q to S$3.4m, translating to a DPU (payable in 2Q09) of 1.15Scts for 1Q09. This came on the back of a 63% increase in tariff receipts from S$4.1m in 4Q08 to S$6.7m in 1Q09. Operating margin of 55% was again better than our expectations. Net profit of S$6.3m was buoyed by a non-cash foreign exchange gain of S$4m.

Operation wise – average utilised volume increased 34% from 169,000 cu m/day in 4Q08 to 226,000 cu m/day in 1Q09, as design capacity increased from 380,000 cu m/ day at end’08 to 520,000 cu m/day at end-March’09. Average utilisation rate, however, fell from 53% to 43% in the same period, as the newer plants did not ramp up fast enough, owing to the industrial slowdown in China.

Recommendation

With the Zunhua WTP coming online in 2Q09 and enhancement works in Changshu leading to higher tariffs, we are fairly confident of HWT generating at least 1.26Scts in DPU for 2Q09. Any shortfall from projected DPU targets of 2.56Scts in 1H09 and 2.86Scts in 2H09 can be met with sponsor’s waiver of distributions, as the subordination clause will come into effect. Hence, given the secure yields, we maintain BUY on HWT with an unchanged TP of S$0.56.

Management indicated that they are more likely to focus on enhancements/ expansions of existing plants than acquisitions, until the macro situation improves. They also remain confident that the slowdown in industrial park activity is a temporary phenomenon and will not lead to a significant structural change.

Hyflux Water Trust distributable cash jumps 91% in Q1 to $3.4m

HYFLUX Water Trust (HWT), the first pure-play global water business trust listed in Asia, yesterday announced a 91 per cent year-on-year jump in distributable cash to $3.4 million for the first quarter ended March 31.

This translates into available distribution per unit (DPU) of 1.15 cents, which trustee-manager Hyflux Water Trust Management said is in line with HWT’s target DPU of 2.56 cents for the first half of 2009. HWT’s policy is to make distributions to unitholders on a half-yearly basis.

The increase in distributable cash was attributed mainly to newly constructed plants commencing operations and the addition of new Rofoar (right of first offer and refusal) plants acquired.

Total revenue for the three months dipped 2 per cent year-on-year to $14.05 million. This was due to a 30 per cent fall in construction revenue to $8.1 million.

Q1 saw a bottomline profit of $6.3 million, against $1.12 million for the year-ago period. The results included ‘other income’ of $4 million, comprising mainly unrealised foreign exchange gain.

Gary Kee, CEO of the trustee-manager, said: ‘We are pleased that HWT has demonstrated such resilient performance in a very difficult market. This is the result of the strong fundamentals of our business model and our continued proactive asset management to ensure sustainable distribution to unitholders.’

The trustee-manager said that despite the challenging global economic environment, the medium to long-term outlook for the global water sector, particularly in China, should remain strong. The credit facility of US$66 million is also not due for repayment till February 2011.

HWT units closed trading one cent up at 38 cents yesterday.

Hyflux trust’s full-year distribution beats forecast

Second-half 2.79-cent DPU brings year’s distribution to 4.96 cents, against forecast of 4.88 cents

HYFLUX Water Trust yesterday reported distribution per unit (DPU) of 4.96 cents for its first full year of operations, 2 per cent above the forecast of 4.88 cents. This represents a yield of 17.1 per cent based on yesterday’s closing price of 29 cents a unit, or 14 per cent based on its Dec 31 close of 35.5 cents.

DPU for the second half ended Dec 31, after waiver of distributions in respect of sponsor units, was 2.79 cents. Total distributable cash was $10.2 million, among 205.5 million units, excluding sponsor units held by Hyflux Ltd, a Singapore-listed water treatment company that had divested water treatment plants in China to set up the trust.

Without the waiver from Hyflux, full-year distribution would have been 3.4 cents, or 1.56 cents less. Distribution is expected to hit 5.42 cents in 2009, the company said.

Hyflux Water Trust recorded a profit after tax of $10.3 million for the full year, or $3.8 million for the fourth quarter, while revenue hit $54 million, or $9 million for the fourth quarter. Revenue came in 5 per cent above estimates.

The trust holds cash and cash equivalents of $35.6 million.

No comparative results for the previous year were provided as the trust was set up only in November 2007.

Hyflux Trust said bank credit was tightening, which made new acquisitions through debt ‘a major challenge’. Equity financing was ‘currently not attractive’.

China is also likely to be hard hit by the current crisis, the trust noted, but said that guaranteed tariffs and a tariff adjustment mechanism would help to maintain margins.

By the end of last year, the trust’s initial portfolio of water treatment plants had a total designed capacity of 380,000 cubic metres a day, with utilisation volume of 177,000 cubic metres a day.

Adding newly acquired plants, the total design capacity as at end-2008 was 520,000 cubic metres a day, while it currently has right of first refusal on plants from its parent Hyflux with capacity of 945,000 cubic metres a day.

Hyflux said the overall medium to long-term outlook for the global water sector, and China in particular, would be strong.

‘Investment opportunities in the water sector are driven by increasing industrialisation, urbanisation and the (China) government’s policy directives to address the country’s critical water pollution and water shortage issues. With improvement in the global credit and capital markets in the future, HWT will be better positioned to deliver on growth,’ it said.

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.