Hyflux

[hkl]

I would like to share my two cents worth on the water treatment industry as well.

Membrane technology aside, the China story on water treatment has been around for some time. I personally invested in two companies not too long ago, Sinomem and United Envirotech. Sinomem has since been privatised. As for United Envirotech, the investment was done with much less due diligence. The realization that $67mil out of $102mil of service concession receivables in their FY2011 balance sheet were due in more than 5 years prompted me to divest. There's also the story of municipal governments in China pledging land on the outskirts as collateral and channeling loans into SPVs to fund their projects. Land prices go up and they get more loans to fund more projects and so on...

Turnkey operators, especially like UENV which has a Build-Order-Transfer model, require extensive capital to finance their projects upfront. The fact that UENV has been raising cash consistently should have been a big warning sign for me. I realise in retrospect that this is similar to the fanfare that solar energy was greeted with back then. The prospects may sound good but not all companies will prosper in the end.

I'm not saying that UENV is bad, but the investment just could not let me sleep sound at night. Today there are many counters on SGX with a foot or two in water treatment, boustead, hankore, darco, sembcorp etc, not to mention the s-chips.

I might be invested in the water treatment stocks again, but i sure will be doing my homework the next time..