Post-conference, we remain optimistic about Hyflux. It has secured funding to support existing and potential new contracts. And despite the economic uncertainty, management expects its net orderbook to grow 20% annually. Hyflux’s profit will continue to grow in the near term, underpinned by its S$1.3b orderbook that is relatively secured since most of its contracts are backed by government bodies. Maintain Buy and S$2.13 target price.

No funding problem. About 70% of Hyflux’s orderbook (c. S$900m) relates to Algerian projects that have secured project financing at attractive terms, while the remaining S$400m can be comfortably funded by divestment proceeds ( S$88m), surplus cash from Algeria, and S$300m of unused MTM. Leveraging on its past successes in innovative capital-recycling platforms, Cityspring and Hyflux Water Trust, management will continue to devise appropriate funding mechanisms to ensure adequate capital for long-term business growth.

Continuous contract flow. Although more time is now needed to filter for bankable projects, Hyflux is determined to grow its net orderbook by 20%. The strongest growth potential is in Algeria, which needs 40 desalination plants over the next five years. In light of the credit crunch, Hyflux prefers to secure EPC deals instead of capital intensive BOT. Brownfield or TOT projects that are already generating cashflows also fit into the tight lending environment.

Near term catalysts would be strong 4Q08 results that is due out on 16 Feb, significant contract wins, and earlier than expected divestment announcements. Key risks will be project delays and execution setback.