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water trust to be listed in the region and should benefit

from strong market fundamentals in the water

infrastructure sector in China.: Hyflux Water Trust (?HWT?) is the first pure-play

Point:

water treatment plants, wastewater treatment plants and

water recycling plants ? capable of supplying a total

capacity of 445,000 cu m / day in key industrial belts of

high growth provinces in China. Growth potential in the

initial years will stem from completing plants and

escalating utilization rates of existing plants, which could

lead to an 82% increase in annual tariff receipts over

2008-2010. Additionally, Hyflux has granted HWT the

rights of first offer and refusal (?ROFOAR?) to a pipeline of

assets with total design capacity of 760,000 cu m/ day, all

ready to be injected into the trust in tranches every 12-18

months. HWT?s debt free position at IPO also leaves

significant headroom for debt-sponsored acquisitions in

the future.The initial portfolio consists of water-related assets ?

Relevance

predictable cash flows, promising a DPU yield of of 7-9%

for FY08 and FY09. At current valuation of 0.88x P/BV,

HWT compares favourably with REITS and other

infrastructure/ shipping trusts listed in Singapore, but with

a much higher debt headroom to fund stronger growth

potential. We believe the counter will outperform over

time as HWT begins to deliver on it post-IPO acquisition

schedule, just as market has favoured developer-backed

REITs which have delivered on their acquisition promises.

We initiate coverage on HWT with a BUY call at a DDMbacked

Target Price of S$0.78 (WACC 10.0%).: HWT is a defensive earnings play with