Wastewater Treatment Plant in Suqian Development Zone, Jiangsu province (design capacity: 60,000tons/day). Photo: Hankore

WITH CHINA’S GDP growth at a 3-year low, monetary easing is on the cards.  That is good news for companies building water treatment plants in China where there is huge demand for water infrastructure.

The highly capital-intensive nature of the business is a challenge, so a drop in interest rates would be most welcome to these companies.

In its 12th 5-year plan (2011 to 2015), China set aside Rmb 104 billion for wastewater treatment, some 28% above the amount budgeted for the previous 5 years.

There is a total budget of Rmb 430 billion on wastewater treatment and water recycling facilities.

Two developments demonstrate the central government’s determination to improve wastewater treatment infrastructure:

Firstly, the Plan provides for the development of a protocol for city council utilities to commission the operation of water treatment facilities to third parties.

Secondly, it provides for increased investments on wastewater treatment facilities that have good pricing mechanisms implemented.

Government funding will be halted for projects that do not meet performance criteria. These may be plants relying on out-dated technology, inability to collect water treatment tariffs, inability to achieve 60% utilization within a year of construction completion, or completed plants that remain dormant without legitimate justification.

The challenge for companies in the sector is investment costs could run as high as Rmb 500 million or more per project for building water treatment facilities.

So, lower interest rates can only lighten the heavy debt-financing burden of this business.

This is especially significant for SGX-listed water companies as equity financing is often a last resort, given the low market valuation accorded for S-chips.

There aren't that many water treatment companies left on SGX, as the ranks of the delisted has grown to include Dayen, Asia Environment and Sinomem Technology.

The few left include Hyflux, Hankore and United Envirotech -- which are featured here.

Hyflux: analyst consensus target price is S$1.43.


Examples of Hyflux's wastewater treatment plants in China. Photo: Company


Olivia Lum, Group CEO of Hyflux. Photo: annual report

>> HYFLUX - homegrown but spreading its wing far and wide

Hyflux Ltd is a Singapore-headquartered group, which reported revenue of S$138.9 million and profit after tax and minority interests of S$7.7 million in the first quarter of FY2012.

Revenue grew 60%, driven largely by contributions from its Asian operations. PATMI rose 4% to S$7.7 million.

Hyflux built Singapore’s first water recycling plant and first seawater reverse osmosis (SWRO) desalination plant and China’s largest SWRO desalination plant in Tianjin City.

The company is building the world's largest SWRO desalination plant in Magtaa, Algeria as well as Singapore’s second SWRO desalination plant, both of which are being developed on a design, build, own and operate model.

Hyflux has been enthusiastically buying back its own shares since Nov last year.

To date, it has bought back 22.76 million shares.


Executive chairman David Chen was a white knight who joined Hankore in Dec 2009 and pumped in S$70.6m.

>> HANKORE – Wastewater treatment player back in the black

Formerly known as Bio-treat, Hankore’s returned to the black this year. It new management took over in Dec 2009 and settled its outstanding convertible bonds debt.

It is now a large scale integrated water environment group in the financing, engineering & construction, operation, equipment and engineering contracting of municipal public utilities with operations in water supply, waste water treatment, treated water recycling businesses.

Hankore posted a 35% year-on-year increase in revenue for 3QFY2012 of Rmb 65.6 million. Net profit was RMB 8 million, compared to a loss in 3QFY2011. The company’s financial year ends in June.

The increase in revenue included the maiden construction revenue of RMB22.0 million, and this is mainly from the San Men Xia project, which is expected to complete and commence operations in the second half of 2012.

The total investment cost of phase one of the project amounted to Rmb 73 million, occupies 60 hectares of land and has capacity for 30,000 tons of municipal and industrial wastewater.

With investments in 13 large-scale municipal water/wastewater projects in Beijing, Jiangsu, Shandong, Shannxi and Henan, Hankore’s revenue outlook is now stabilized.

Its 3QFY2012 revenue included discharge fee income from water and wastewater treatment of Rmb 5.1 million and finance income from service concession arrangements of Rmb 38.6 million.

Visit Hankore's website to view pictures of its projects here.

Related story: HANKORE (Fka Bio-Treat): A Makeover In The Making



Dr Lin Yucheng, CEO of United Envirotech

>> UNITED ENVIROTECH – Technology in demand as China tightens rules for drinking water

United Envirotech is a one of the world’s top 5 membrane based water & wastewater treatment and reclamation solution providers, having designed and built several of the largest wastewater treatment plants in Asia using its MBR technology.

Last month, it secured a Rmb 216 million (S$43 million) Engineering, Procurement and Construction (EPC) project to construct a 100,000 m3/day drinking water plant in Yantai City, Shandong Province, China.

The plant will use ultra-filtration and reverse osmosis technologies to treat river water into high-quality drinking water. The project is expected to be completed by the end of 2013 and will be one of the largest drinking water plants using dual membrane technology in China.

UEL consensus target price is 46.5 cents.

Related story: Kim Eng's Privatisation List; CHINA MINZHONG Is Deep Value; UTD ENVIROTECH Is A Buy

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