SINGAPORE - Water treatment firm Hyflux's third-quarter net profit plunged despite an increase in revenue, as the cost of raw materials, consumables and subcontractors' costs spiked.
Earnings for the quarter ended Sept 30 sank 43 per cent over last year to S$6.44 million, even as revenue rose 32 per cent to S$133.52 million.
The increase in sales came largely from projects in the Middle East, in particular the Qurayyat Independent Water Project in the Sultanate of Oman.
Revenue from the Middle East and North Africa region accounted for 58 per cent of revenue in the quarter, or S$77 million, a sharp increase from $8.1 million in the same quarter last year.
However, this increase was offset by a weaker Singapore market, where sales slipped from S$75 million in the third quarter last year to S$39 million this year, making up 29 per cent of revenue.
The company also recognised a one-off provisional fair value remeasurement gain of S$12.3 million in the quarter, from its acquisition of the remaining 50 per cent equity stake in H.J. NewSpring, the holding company of Tianjin Dagang Desalination Plant in China.
These gains were offset by a 69 per cent surge in the cost of raw materials, consumables used and subcontractors' costs compared with the same quarter a year ago. These costs came up to S$73.33 million in the third quarter this year, from S$43.44 million last year.
The company noted in its exchange filing that higher direct costs for the quarter were in line with higher revenue, and finance costs also went up due mainly to the financing of its Tuaspring plant.
Unrealised foreign exchange losses from the strengthening of the greenback against the Singapore dollar and the yuan also led to an uptick in expenses.
Loss per share for the quarter was 0.75 cents, down from a loss per share of 0.07 cents in the same period a year ago. Net asset value per share was 54.4 cents as at Sept 30, down from 56.6 cents as at Dec 31 last year.
The Middle East and North Africa as well as Singapore are expected to be the main revenue contributors for the next few years as the company develops water and waste-to-energy projects in these regions, it said.
The company added that Singapore's sixth waste-to-energy plant, in addition to the group's project wins in Oman and Saudi Arabia, will help the firm expand its business to include sustainable solutions that help municipalities and industries to optimise resources.
"With many countries scaling back on infrastructure projects as a result of the depressed oil prices, Hyflux is cautious about its business outlook in the near term. Nevertheless, the group has a strong order book and will continue to strengthen its capabilities in anticipation of the longer-term growth opportunities."
Separately, Hyflux said it has signed an agreement to acquire a 30 per cent stake in consumer water technology company, Kaqun Europe Zrt (Kaqun Europe), for US$8 million.
Hyflux will integrate its proprietary technology together with Kaqun Europe for a product line that it has exclusive rights to manufacture, sell, market and distribute under the brand name ELO in the Asia-Pacific, the Middle East and Africa, through a newly established entity called Elo Water.
Hyflux Consumer will own a 70 per cent stake in Elo while Kaqun Europe will own the remaining 30 per cent.
