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24 Mar 05
Hyflux Seeking to Quench World's Thirst For Water
Story by Jason Szep
SINGAPORE - Olivia Lum, founder and chief of water treatment group Hyflux Ltd., reckons fresh water will someday be more valuable than crude oil. With that in mind, Lum says Singapore's biggest publicly traded water-treatment company may expand into India and Thailand after sealing contracts in Dubai last year and building up a presence in China by purifying water from rivers and seas on a commercial scale.
In an interview with Reuters on Wednesday, Lum also confirmed that Hyflux was bidding with a privately-held US group to build two plants in Algeria, Africa's second-largest country. "We have our plate full in China and the Middle East, but we are still keeping a close watch in India," said the 44-year-old, who was voted Singapore's Ernst & Young Entrepreneur of the Year in 2003. "We intend to get into the India market."
Hyflux, which competes with General Electric Co., Siemens AG's and Canada's Zenon Environmental Inc. in the global water treatment market, now has about S$900 million ($550 million) in potential orders, she said. These include projects in the United Arab Emirates where Hyflux is building water recycling plants over three years for a string of man-made islands catering to the wealthy off the Dubai coast in a venture with investment firm Istithmar PJSC. "In the next 3 to 5 years, we hope we can extend this joint venture platform to other markets in the Middle East," said Lum, who says she is aiming for 40 percent of group sales from China, 40 percent from the Middle East and 20 percent in other markets. In 2004, about 80 percent of Hyflux's group sales of S$88.7 million came from China, doubling from 2003. Hyflux was looking to expand in Thailand through industrial projects run by Hyflux with partners or the government, she said.
TAPPING ASIA She said Hyflux expected to launch a new "M" model of Dragonfly -- an appliance that can extract moisture from the air and turn it into drinking water -- around May or June targeted at the US, Mexican and Middle Eastern consumer markets. But she said projects with municipal governments in regions such as China and India -- where population growth, mass urbanisation and development are fuelling pollution -- would continue to outweigh contributions from consumer products.
Analysts say the industry's growth potential is underscored by UN statistics showing that 785 million people in Asia's developing regions lack regular access to safe water. Hyflux, with a market capitalisation of $544 million, is more expensive than most shares in Singapore, trading at 22.1 times projected 2005 earnings, above Singapore's benchmark Straits Times Index's 13.8 times, Reuters data shows. After an 86.8 percent surge in its shares last year -- more than five times the Singapore market's 17 percent rise -- the stock is down 7.9 percent this year, underperforming a 4.2 percent gain in the STI.
But some analysts such as J.P. Morgan's Winnifred Heap said a better proxy for Hyflux is Ontario-based Zenon, whose shares trade at about 38 times projected 2005 earnings. Analysts said earnings forecasts for this year depend partly on whether Hyflux can complete the securitisation of Singapore's first seawater desalination project, a move that could free up cash for investments and generate a capital gain. Lum said she was hopeful this could be done by year-end. Some analysts say they expect group earnings to rise about 60 percent this year to nearly S$50 million ($30.8 million) if the plant is securitised. "If they can securitise it by this year, they can lighten the balance sheet. There will be cash flow coming in and it will be easier for them to take on more projects," said Kerryn Tay, an analyst at GK Goh Securities. "There was expectation when they do securitise it there will be capital gains," she added.
Lum said Hyflux and privately-held US engineering firm Black & Veatch Corp. were bidding for a contract in Algeria to build two 50,000-cubic metre a day desalination plants in Mostagenem and Tlemcen. Black & Veatch would be sub-contractor. "We have not won yet. We are still in the bidding stage," she said.
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