SINGAPORE (The Business Times) - In City Square Mall, a new store offering bath facilities opened its doors to shoppers two weeks ago. One might dismiss the new shopfront as just another new face in the constant churning of the old that makes way for the new - part of the game of survival that is the competitive retail landscape in Singapore.
But far more heft lies behind this store in the suburban mall - the S$440 million company that is Hyflux, the darling of Singapore's water sector, better known for its desalination plants.
The Singapore-listed company will open Elo Lab officially on Sept 8. This marks the group's first foray into the brick-and-mortar retail sector with its budding consumer business. More than that, it is also a physical representation of Hyflux's bet on the consumer water business - in particular, on a special oxygenated water termed Elo Water.
Said to contain three times more oxygen than tap water, Elo Water was the reason behind Hyflux's US$8 million investment in European firm Kaqun Europe in November last year. It also forms the basis for the group's new bath facilities, as well as bottled drinking water and skincare gels that it sells online.
"Oxygen can increase the cell's ability to generate more energy," Hyflux group chief financial officer Lim Suat Wah explained in an interview with The Business Times. "A cell with sufficient oxygen can actually generate 15 times more energy than a cell without sufficient oxygen. So this Elo Water puts the two together, the water element as well as the oxygen."
The venture into the consumer business came as Hyflux sought to see how water, besides being used for daily needs, could also be used to improve health.
It conducted in-house research and scoured the world's water technology startups. The search unearthed a company which produced similar oxygenated water in the US a few years ago, but the oxygen level in the water produced with their technology wasn't stable.
With Kaqun, however, Hyflux believes it has hit the jackpot: water that contains stable oxygen levels and can be easily absorbed into the body. This has been shown to reduce mental and physical tiredness, according to Kaqun's website.
The oxygenated water is said to have been developed from more than 10 years of research work by a group of doctors. Hyflux holds the exclusive rights to manufacture, sell and market Elo Water in the Asia-Pacific, Middle East and Africa. It holds a 70 per cent stake in Elo Water Pte Ltd with Kaqun Europe owning the rest.
"We're quite excited about this business," said Ms Lim. The group hopes to add its proprietary membrane expertise to purify the water and also use its know-how to scale up production of Elo Water while ensuring consistency in quality.
Hyflux has wasted no time. For a start, it has started clinical trials to test the properties of Elo Water. The first of these have just been concluded, with observations of improved skin condition after the use of Elo Gel.
The clinical study, conducted by Seoul-based clinical trial institute, involved 22 women aged 49 to 52 years old who applied Elo Gel every morning and night on half their face for eight straight weeks. During this period, skin wrinkles, colour elasticity, hydration and radiance were observed to be "significantly improved" on the side of their faces treated with Elo Gel.
"We're encouraged because what the study proved validates some of the observations that we've been hearing from people who already use it," Ms Lim said. "Similarly for (drinking) water, we're hearing anecdotal evidence on how it has helped them, so we're also hoping that the results of the clinical trial will substantiate and validate those observations."
But even before conclusive trial results on the drinking water and bath come in - expected to be only next year - news of the products and their effects have travelled by word of mouth. Bottles of Elo Water and Elo Gel have been snapped up, causing the company to run out of stock of the products on occasions. A pack of six 1.5-litre bottles of Elo Water costs S$63.80 and a single tube of Elo Gel, S$68, according to its website.
Still, Hyflux is not expecting a material impact from the business on its earnings for this year.
"It's still relatively small," said Ms Lim. "Today we're only selling in Singapore, and only online." The group will not actively market the products until it has more substantial trial results, she added.
The firm is hoping that Elo Water might bring it a new breath of life, providing a cushion from the subdued prospects in its municipal water treatment business and broadening Hyflux's reach to a new group of customers.
Hyflux's municipal segment contributed 94 per cent of its S$445 million revenue in the 2015 financial year, with its main markets being Middle East/ North Africa (39.5 per cent), Singapore (38 per cent) and China (19.8 per cent)
The group said last month that it remains cautious on the business outlook due to the sustained low oil price environment and economic uncertainties arising from Britain's exit from the European Union. Hyflux's second-quarter earnings plummeted 90 per cent to S$2.6 million from S$26 million a year earlier despite revenue more than doubling, as costs for raw materials and sub-contractors, as well as higher amortisation charges, weighed on its bottomline.
Lower oil prices reduce the likelihood that countries in the Middle East will invest in infrastructure, dimming the prospects for Hyflux's order book, said iFast research.
The new consumer business will probably have a significant effect on the group's earnings only in the second half of next year, or the year after, Ms Lim told BT. "Right now we're still investing in clinical trials, so net net, the business is not making money."
How large the business could grow into would depend on the number of cities Hyflux moves into, she added. More investment will also be needed in marketing, IT systems and building up a logistics network.
For now, Singapore will be the starting point for sales, and a valuable one given its credibility and governance. "If it can be established in Singapore, then other cities and countries will look at (Elo Water) with more trust."
Next year, the group plans to expand sales to other Asian cities such as Malaysia and Indonesia. China, too, is on the radar, said Ms Lim.
Already, enquiries have started trickling in from Australia, Hong Kong, Thailand and China. "As it is right now, we already have overseas customers writing in to ask when we will be going to their countries even though we have not marketed (the products)."
The group is also hoping for positive clinical trial results to give the products more credibility, especially within the medical field. Anecdotally, users have said that Elo Water helps to improve certain medical conditions, and some medical clinics are already ordering the gel and drinking water through the Elo Water website.
Said Ms Lim: "Some heard from their patients who tried it and went back to them, so they know that there's some effect there. But they can't actively promote it at this time (without the clinical trial results)."
When the results come out, "hopefully, at that point in time, it will take off on a larger scale", she said.
For individuals such as homemaker Audrey Koh, however, personal experience alone suffices.
The 49-year-old has been drinking Elo Water since February this year and also finished a cycle of soaking sessions for 14 straight days.
"People who have not seen me for a year or even six months and saw me recently remark that I look as though I have lost weight," she said, adding her complexion has improved, and body more toned.
Asked whether the price tag would deter her from continuing on another cycle of soaking sessions or drinking Elo Water, she said the opportunity cost of being ill is higher than the cost of water. Ms Koh added: "How do you place a price on health?