Hyflux

[Sampling]

The Hyflux Perp is Cumulative. So still can collect later. However such miss payment is only useful to Hyflux due to surprise event where cash flow is not according to plan and need to push to next payment. During this period no share dividends allowed. This will push Hyflux to have to resolve quickly else they will have problem raising money later. However if the repayment problem is due to deeper issue, then Cumulative will not help much since it will likely be downward spiral. The share price will likely dive too.

yes that's in my mind too... if it goes to that... I think best for ppl to exit!

lucky or unlucky some how I only managed to get only 10% of my intended subscription. was cursing at first but now like a blessing in disguise.

[Boon]

Do you agree with the analysis?

Is Hyflux considered another distressed SG company?

Does Hyflux possess the right economic model to be a viable continuing business?
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Hyflux: Another Distressed Singapore Company? 
Sep 1, 2016 

http://seekingalpha.com/instablog/460032...re-company

In all honesty, we don't believe that Hyflux is a fraudulent company, nor there are any fraudulent activities within the company. We just think that the company does not possess the right economic model to be a viable continuing business.

Additional disclosure: We did tried to short the stock, but couldn't find shares to borrow ...
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[dydx]

Put very simply, the rampant issuing of Perpetuals (Perpetual Capital Securities) - 3 issues totalling $975m, all within a period of just 28 months - together with the $392.6m CPS (Cumulative Perpetual Preference Shares), have destroyed the value of Hyflux's common shares. Furthermore, the lack of sufficient and sustainable profitability in the overall group business will continue to weigh on the intrinsic and market values of all Hyflux securities.

[Clement]

Do you agree with the analysis?

Is Hyflux considered another distressed SG company?

Does Hyflux possess the right economic model to be a viable continuing business?
__________________________________________________________________________________________________________________________________________

Hyflux: Another Distressed Singapore Company? 
Sep 1, 2016 

http://seekingalpha.com/instablog/460032...re-company

In all honesty, we don't believe that Hyflux is a fraudulent company, nor there are any fraudulent activities within the company. We just think that the company does not possess the right economic model to be a viable continuing business.

Additional disclosure: We did tried to short the stock, but couldn't find shares to borrow ...
___________________________________________________________________________________________________________________________

I have not looked into Hyflux in depth, but i think the analysis is too simplistic.

Positive operating income and negative operating cash flows are not unusual for companies which rely on service concession contracts and are actively investing into new deals to expand the concessions portfolio. Accounting wise, the company is required to break each deal into construction, operation & maintenance and financing when computing revenue and therefore the revenue does not correspond well to the expected cash inflow for the year. 

For example, in 2015, Hyflux recognised $264 million in construction revenue on service concessions agreements. This revenue, which represents 59% of the company's 2015 revenues, will not be settled in cash but over time through water/power off-take agreements. I have not looked at the individual service concession agreements to determine the expected future cash flows from them, therefore i will reserve judgement on whether those were good deals or not.

As to the way the company finances the operations, I think it depends on what is the actual rate of return it is getting on the service concessions and the level of variance in those returns. If the off-take agreements provide a reliable, steady rate of return in excess of the dividend rate paid on those "ToxSec", then it is a viable business.

[corydorus]

Personally I feel the CEO knows what she is doing when so go on Raise Capital Expansion spread. I do not think is to secure building profit. But on Operate, Maintain and Supplies model. This needs scale since you need to popularise the supplies and what is best other than to build as large and many as possible, and design supplies for it. There is still Risk as I could be totally wrong. So one need to be able to be ok if so.

[weijian]

I have not looked into Hyflux in depth, but i think the analysis is too simplistic.

Positive operating income and negative operating cash flows are not unusual for companies which rely on service concession contracts and are actively investing into new deals to expand the concessions portfolio. Accounting wise, the company is required to break each deal into construction, operation & maintenance and financing when computing revenue and therefore the revenue does not correspond well to the expected cash inflow for the year. 

For example, in 2015, Hyflux recognised $264 million in construction revenue on service concessions agreements. This revenue, which represents 59% of the company's 2015 revenues, will not be settled in cash but over time through water/power off-take agreements. I have not looked at the individual service concession agreements to determine the expected future cash flows from them, therefore i will reserve judgement on whether those were good deals or not.

As to the way the company finances the operations, I think it depends on what is the actual rate of return it is getting on the service concessions and the level of variance in those returns. If the off-take agreements provide a reliable, steady rate of return in excess of the dividend rate paid on those "ToxSec", then it is a viable business.

I do agree it is too simplistic. I haven't looked into Hyflux in detail too but based on my past experience investing in such BOT companies, such business model depends on good execution prowess and also for the jurisdiction that the concessions are in, to continue to recognize and enforce these concessions. Buffett fired his elephant gun to land BNSF because he had faith in the jurisdiction of the United States.

In essence, with Hyflux's stretched balance sheet, she needs alot of things to either remain constant or go right for them, just to ensure results turn out alright. Any other alternate scenarios, and results will go wrong.

In the words of Nassim Taleb, its highly leveraged balance sheet depending on future cash flow to satisfy it, is a little bit too fragile, IMO. The future is made up of alternative histories, probabilistic-ally speaking. We can easily turn back to 3years ago and look at Swiber's balance sheet just before the prolonged oil crisis....

[Clement]

I have not looked into Hyflux in depth, but i think the analysis is too simplistic.

Positive operating income and negative operating cash flows are not unusual for companies which rely on service concession contracts and are actively investing into new deals to expand the concessions portfolio. Accounting wise, the company is required to break each deal into construction, operation & maintenance and financing when computing revenue and therefore the revenue does not correspond well to the expected cash inflow for the year. 

For example, in 2015, Hyflux recognised $264 million in construction revenue on service concessions agreements. This revenue, which represents 59% of the company's 2015 revenues, will not be settled in cash but over time through water/power off-take agreements. I have not looked at the individual service concession agreements to determine the expected future cash flows from them, therefore i will reserve judgement on whether those were good deals or not.

As to the way the company finances the operations, I think it depends on what is the actual rate of return it is getting on the service concessions and the level of variance in those returns. If the off-take agreements provide a reliable, steady rate of return in excess of the dividend rate paid on those "ToxSec", then it is a viable business.

I do agree it is too simplistic. I haven't looked into Hyflux in detail too but based on my past experience investing in such BOT companies, such business model depends on good execution prowess and also for the jurisdiction that the concessions are in, to continue to recognize and enforce these concessions. Buffett fired his elephant gun to land BNSF because he had faith in the jurisdiction of the United States.

In essence, with Hyflux's stretched balance sheet, she needs alot of things to either remain constant or go right for them, just to ensure results turn out alright. Any other alternate scenarios, and results will go wrong.

In the words of Nassim Taleb, its highly leveraged balance sheet depending on future cash flow to satisfy it, is a little bit too fragile, IMO. The future is made up of alternative histories, probabilistic-ally speaking. We can easily turn back to 3years ago and look at Swiber's balance sheet just before the prolonged oil crisis....

I agree that the long payback period of the projects in volatile geographies creates significant risks. 

However, i think that the capital structure of Hyflux is structured to manage such risks by seeking equally long duration, hard to yank financing.

[specuvestor]

Firstly i have to admit that i do not follow water stocks closely after my experience with Hyflux and Hyflux Water Trust.

http://www.valuebuddies.com/thread-4415-...#pid112031

^^That was a decade ago. I realized their cash flow and their revenue do not match (to put it mildly) as they pre-book revenue whenever they sell their completed project to another 49% owned entity ie consolidated to associate, but profit from sale booked. So thereafter whenever they make the final sale to the municipal, govt etc the stock doesn't move cause there is no more PnL to book.

In the same logic, they had to sell HWT to recycle their cash cause their business model was extremely capital intensive. I forgot the logic of privatizing it later.

I think it is important to figure out the capital intensity of water stocks, despite the nice macro / concept.

[Behappyalways]

As long as Hyflux continues to report negative operating cashflow, it will have to depend on the goodwill and confidence of new investors willing to invest in their new debts. If there is a sudden change in mood/confidence, then that's it

[Boon]

Over the last few years:

Debts (Loans and borrowings) have increased.
 
“Hybrid-Equities” ( = CPS+ Perp = “ToxSec) have increased.
 
Service concession arrangement assets (intangible assets arising from SCA + financial receivables) have increased.
 
Net assets of the Group have increased.
 
But NAV per share has been decreasing – why?
 
NAV per share (SGD cents)
FY2012 = 55.8
FY2013 = 58.4
FY2014 = 56.6
FY2015 = 54.2
1H2016 = 44.3
 
My preliminary assessment is: rate of return from projects undertaken thus far has been less than dividend rate paid on debts/"ToxSec" deployed. 
 
BTW, here is the link on accounting treatment of service concession arrangements which I find interesting …………………..
 
http://www.assb.gov.sg/docs/attachments/...2_2008.pdf
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