The Difference Between Hyflux vs Hyflux Water Trust.

I was asked this question by a reader, and thought it would be useful to share my answer here:

What is Hyflux?

Hyflux is a water treatment company specialising in the provision of integrated treatment systems for advanced water treatment and membrane filtration.

It derives its revenue from the projects it undertakes.

What is Hyflux Water Trust?

On the other hand, the primary business of Hyflux Water Trust is the ownership and management of water treatment facilities, whereby it derives its revenue from the rental of these facilities.

Hyflux Water Trust thus can be considered somewhat of a subsidiary of Hyflux, whereby Hyflux can create a win-win situation for itself by:

1) Transferring the risk of ownership of those facilities over to the Trust.

2) And yet deriving rental income via the ownership of shares in the Trust.

What is the difference to an investor?

An investor in Hyflux would be investing in the growth prospects of the company, whereby the likely capital gains would come mainly from the rise in share price.

As a growth company, Hyflux mainly re-invests its profits into driving its business forward, which is why its dividend yield is usually maintained at a low 0.6-0.8%.

On the other hand, an investor in Hyflux Water Trust would be investing in the stable and regular rental income derived its portfolio of facilities.

The Trust will typically pay out most of its profits as dividends - it had stated in its prospectus that its projected dividend yield based on IPO price of $0.78 would be 4.46% for FY2008, and 5.26% for FY2009.

Its income is not likely to grow significantly unless it acquires additional facilities which will provide more rental income.

Conclusion: Hyflux is a growth play whereas Hyflux Business Trust is a yield play.