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Hyflux: Continuing downtrend.

Thursday, December 15, 2011

My recent decision to go long in Hyflux has turned out poorly. It was a decision heavy on TA and almost nothing FA wise. So, should I cut? Regular readers know that I do not like to cut as prices are declining.

Prices go down a river of hope and I would like to cut on rebounds and if prices should test resistance. If the opportunity does not present itself, then, it is another stock for the freezer.


I have always liked Hyflux's business but in the last crisis, I chose to invest in E-pure instead for its less demanding valuation. Some told me that Hyflux would be safer as E-pure was an S-chip. We are probably all affected at the subconscious level in the same way.

In the last crisis, Hyflux touched a low of $1.11 in October 2008. Today, this low has been taken out.  Does this mean that Mr. Market feel that Hyflux will do a lot worse compared to the last crisis? It does seem to be the case.

Despite all the concerns raised regarding Hyflux's debt, its numbers are still pretty good.

Net margin:
13%. This is a good business.

Net gearing:
0.1x. Concerns regarding Hyflux's debt overdone perhaps?

Contributions from Tuaspring Desalination Plant to start in FY2012.

See slides presentation 3Q FY2011: click here.

Technically, Hyflux is in a downtrend. Looking at the chart, the very long term support would be at $1 (a many times tested support back in 2002) and $0.86 (the low of 9 Sep 2002). Would these be tested in time? No one can say but if they should be tested, they would be buying opportunities.

Right now, $1.065 is immediate support provided by the 123.6% Fibo line. A stronger support would be at $1.015, the 138.2% Fibo line and a golden ratio.

11 comments:

Anonymous said...

Didn't they do a share split recently ? If I am not wrong, adjusting for the 1 for 2 bonus issue in Dec 2010, the 'pre-split' share price is $1.60 now ? Or was this already taken into account haha

Cheers,
Nick

AK71 said...

Hi Nick,

Yes, the charts show price plunging by $1 or so in December 2010. Ah, that is the reason why. Thanks for pointing this out. :)

FoodieFC said...

Weird that everyone is selling off this share.

AK71 said...

Hi FoodieFC,

Mr. Market likes to keep us guessing. ;)

kill the vampire squid said...

For hyflux it's about their technology. Wouldn't it be a concern that with them going into China, the Chinese would just reverse engineer and become Hyflux 2.0? They pulled that stunt on the Germans with the bullet trains. Why not sewage to drinking water?

AK71 said...

Hi KTVS,

The Chinese have companies like SoundGlobal (formerly E-pure) and Sinomem which are in the same business. I don't think they need to create a chinese version Hyflux or steal their technology.

However, I must admit that I don't know the industry well enough to say if Hyflux's know how is superior and if it is worth copying. So, I shall not say more. ;p

Anonymous said...

hi AK,

I would like to know more abt Hyflux if u are holding on to it or buying more when the price come down further, if any.

I wonder how you withstand the feeling of seeing the price coming down everyday. They say trading is 70% psychology.

-Jaime

AK71 said...

Hi Jaime,

Hyflux's downtrend is quite clear. There is no sign of bottoming as yet.

My long position is now in the red. However, I don't like to cut when prices are in decline. I like to cut during rebounds. Very often, this approach has paid off in the past for me. In the instances when prices did not rebound, then, just too bad for me. ;p

Investing in fundamentally sound companies, I am less worried about holding on to positions with paper losses. :)

Ah John said...

I like the story of its founder, and I Belle she won't destroy the company. But the problem is, I still can't figure out how they make money. If rely on selling water to recover the investment, will it be good idea, because in my mind, water is infrastructure, and profit can't be very high.

AK71 said...

Hi Ah John,

Well, I don't really know the water business as well. I am no engineer or businessman.

I just know that the world needs solutions to water problems. There are lots of business opportunities out there for companies like Hyflux. :)

You know how Warren Buffet always looks for businesses which have Gross Profit margins of 40% or more? Hyflux's GP was 48% (9M11). Net margin was 13%. Not bad.

OK, I stop here. My brain is fried. ;)

Anonymous said...

Hi,

My view is that investors are shy away of their newly venture into Power Generation.

RagingBull.

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