Five Important Lessons That Investors In Singapore Can Learn From Hyflux
Being a successful investor in Singapore takes a lot of skill and understanding of the market. Often times the best way to get there is by learning through mistakes, especially the mistakes of other people or other businesses that have been there before. In this case, Hyflux is one of the best examples that Singapore investors can learn from given its successful past and rocky present.
Hyflux is a water treatment firm that is based in Singapore and over the past few years, it has risen to greatness. In fact, it was so successful that its CEO Olivia Lum became one of the top 40 wealthiest people in Southeast Asia in 2005. Her net worth was valued above $460 million in 2011. However, things seem to have taken a downward spiral since 2013 as the company’s performance started to deteriorate.
The downfall of Hyflux
The water treatment firm has been troubled for the past few years and it announced its first annual loss of $87 million in 2017 and further losses this year while its bank debt expands to a whopping $2.1 billion. Lum believes that the losses that the company made are the excessive supply of gas in Singapore, thus causing a negative effect on electricity prices and eventually disrupting the company’s cash position.
Takeaways for Singapore investors concerning the company performance
- You win some, you lose some
Hyflux was once one of the highest performing companies and now it is struggling with massive debt and is unable to compensate its investors. The firm has more than 50,000 shareholders and it owes a total of $1.17 billion to 60 percent of those shareholders. Paying those investors is a bit of a stretch for the company at the moment considering that its market cap has plummeted from around $1.6 billion in 2010 to a market cap that is lower than $150 million this year.
The massive decline in market cap is an investor’s nightmare considering the previous performance of the company. Ultimately, investors must keep in mind that there is always some degree of risk involved even in the best-performing investment opportunities. It just so happened that Hyflux found itself in rough waters but that does not mean that it is the end of the road. It depends on whether the people at the helm of the company will manage to steer the firm into recovery.
- Dealing with external forces
In order for investors in Singapore to get the most of their investments, they must be able to study the market and determine or predict the factors that will most likely influence the performance of the businesses that they have invested in. Hyflux is a firm that has historically been highly successful and given its line of business involves providing clean water, it is thus an ideal investment opportunity. However, a keen investor should focus on understanding how the company runs the process of purifying water in order to understand the factors that would disrupt the business.
An investor that did their research would probably tread carefully considering the changes in the supply chain and the impact of unfavourable market conditions. Such an investor would then know when to pull out of that investment option while it is still profitable before the waves of disruption cause losses.
- The importance of managing debt
A massive debt portfolio is arguably one of the reasons why Hyflux is dealing with its current situation. As noted earlier, the company has a market cap that is significantly lower than the debt it owes to its investors. This makes the situation more severe because investors tend to lose confidence in such situations. Additionally, this affects its cash flow since a massive debt affects its ability to secure more funding that can be used to steer the business towards the right path.
It is therefore important for a company to maintain a debt portfolio that is of manageable levels to prevent things from spiralling downwards even further. Singapore investors need to evaluate the debt level of businesses before they investing in them to avoid being caught up in that web. The takeout, in this case, is that Hyflux has been a risky investment for investors as its debt ballooned to overwhelming levels.
- The need to evolve
Evolution is an important part of business as it is to nature. Firms and businesses need to constantly evolve in order to keep up with the changing landscape. The market is always demanding a better product and as such, businesses have to work towards keeping up with that demand by improving their offerings.
Companies also need to evolve in how they handle or conduct their operations by focusing on making their operations more efficient. This explains another major reason why Hyflux has been having some problems related to electricity prices. The process of purifying water especially on a large scale requires a lot of electricity.
Perhaps the outcome as far as the performance of the company would have been better if Hyflux had developed or adopted more efficient technology. This is something that investors in Singapore should consider when determining whether or not to invest in a company especially if technical operations are involved.
- What will the future look like?
Just because Hyflux has not been performing well lately doesn’t mean that investors should shy off. In fact, the past performance of the company is a good indicator of just what it is capable of and it is also important to keep in mind that bad days do not last forever. That being said, the water purifying company is working on solutions that will help improve its performance and maximize investor returns.
Investors in Singapore might still be interested in keeping Hyflux in their watchlist following the recent announcement that the firm will focus on reorganization. Lum is also committed to making sure that the company continues to operate. Hyflux is planning to dispose of two plants and the proceeds from the sale will most likely be used to offset some of the debt. It is also said to be in talks with quite a good number of financiers. This means that it is already working on getting back to its former glory.
The performance of Hyflux from its glory days to its fall presents a great opportunity for Singapore investors to gain insights into how to invest more wisely and even identify key points that can help them make better investment decisions.