Hyfluxshop - Good buy or good bye?

Sources
http://investors.hyflux.com/newsroom/20180201_173107_600_GB8Y3Z4PUZ7L5A01.3.pdf
http://investors.hyflux.com/newsroom/20180201_173107_600_GB8Y3Z4PUZ7L5A01.1.pdf
https://hyfluxhomeproducts.com/
Hyflux extraordinary general meeting

Hyfluxshop - good buy or goodbye?

I attended the egm on 02 Feb at Hyflux innovation centre. It was my first agm/egm in my life and it was an eye opener. I have heavily researched on Hyflux, read about the water industry and even went to the YouTube channel to see its products and how the business is like on the ground and I was really impressed by it. Hyflux is in the municipal Liquid business, but ironically in a debt ridden and illiquid financial position. A part of me wanted to liquidate a portion of my ordinary shares while the other part still think it is a company with great potential. It was venturing into retail business (Hyfluxshop) that could be a potential diwosify, and now it is spinning it off and seeking shareholder approval in this egm. There are no easy answers to this and I went to the egm to hopefully get the answers I want

Top highlights of Hyfluxshop egm
1) Hyfluxshop preference shares is issued by hyfluxshop to Hyflux group in exchange for startup funding. May have risk of related party transactions but in my opinion Hyflux Olivia lum (majority shareholder) is shareholder friendly management and most likely not do anything detrimental against shareholders

2) Hyfluxshop retail competitors are in non water business and products are not backed by clinical trials. If hyfluxshop clinical trials succeed, this company will have a great moat and strong source of credibility. Trying to secure first mover advantage with scientific backing is a high importance event. If it fails,  hyflushop will be just one of the retail water companies. Hyfluxshop is leveraging on the Hyflux name for branding purposes (branding and goodwill)

3) Retail products
water conditioning and filtration pitcher - each filter must be replaced every 2-3 months. Alkaline filter and super filter
Under sink filters - each filter must be replaced every 3 years
Products are not cheap and have a sizeable profit margin. In Singapore, tap water is of consumption quality so business potential is limited. In other countries whereby hyfluxshop is expanding (Taiwan, Indonesia) , the business and market potential is much higher in number of consumers and need of such a water filtration product. Elo food and skincare is beyond my circle of competence.

4) The presentation warned about the use of forward looking statements. As it is a Blackout period, management is unable to disclose financial statements of Hyflux and hyfluxshop .Management states Egm supposed to be conducted earlier but delayed due to regulatory approval.

5) Hyfluxshop sales results and breakdown of constituents are unable to be provided for which I am not too happy with. Hyfluxshop is of a Startup business which most likely need a lot of funding. It is focusing on its diabetes clinical trial collaboration with cgh, to lend credibility to elo water. After gaining credibility, it will have to raise capital to start marketing / distributing it's products. There is slow progress and need at one more year or more for the research to bear fruit (not guaranteed of success). CGH is collaborating with other clinics independently to hasten progress, and Hyflux cannot control the  progress.

6) Challenges of Hyflux group
Energy business in Singapore is very competitive and badly hit, leaving to wiping out of epc profits . However if taken a longer time horizon (2-3 years), the energy market will recover though I am not sure if Hyflux energy will still remain. Epc business slowing in the past years (energy crisis in Middle East), explaining its decline in revenue over the past years.

Preference share ir rollover is a credible threat. Hyflux management indicated they can always not redeem the quasi equity at the next call date but at a later date.

In my personal opinion, there is always the chance that Hyflux will use this dividend in specie to lower it's retained earnings and earnings per share, to remove tax liability and also use it as a defence clause to not pay cash dividends to ordinary shareholders and preferred shareholders, to improve its cash position.

6) Major shareholder Olivia lum is still holding on to her voting shares and openly indicated she was more than willing to buyback hyfluxshop shares at a later date. That is a powerful vote of confidence though it should be mentioned that the other management have no holdings or declared a similar enthusiasm about its ordinary shares.

7) Hyflux group is still focusing on municipal group and not diwosify to business and strategies it is not tailored for. Hyfluxshop will be led by a different management / strategy but she will still chair the management team.

8) This share Dividend is paid out of retained  earnings. There is no impact in Hyflux cash flow but there will be adjustments in accounting value. Shares value expected to drop after ex dividend on 5 Feb unless improvement in financial results.

9) Hyfluxshop retail / consumer business
Elo water (water with potential added medical benefits)
Filtration products (alkaline water, filtered water)
Elo food (nutrition)
Beauty (skin care)
Its main Distribution channels for now is Hyflux shop and provides door to door delivery.

Unlike hyflux, hyfluxshop has lower Capex and is relative asset light. It's main overheads will be production, distribution costs via e-commerce, and marketing cost . Marketing costs will only be increased once oxygenated water clinical trials are successful.

10) Regarding the protection of Hyflux Water filter Krystal patents, Hyflux has displayed its knowledge on how to maneuveur and navigate. It knows the process well and most likely will not be shortchanged in a foreign environment.

11) If I were to dispose of hyfluxshop (prior to listing as a private company) , I can do it via Off market transaction.
Olivia lum made a general offer to all shareholders to buyback the shares at a later date. There is no real risk to holding until ex dividend date, then decide what to do with hyfluxshop. I expect significant volatility in Hyflux shares though when it's q4 and 2017 earnings are out. There will be a subsequent AGM at April. Most likely, it is not out of the ropes yet and still drenched in red ink, especially when the toxic tuaspring is still not yet successly divested.

12) Hyflux shop management team still consist of Olivia lum. Unlikely to have shareholder unfriendly management

13) Misc info
Hyflux innovation centre owned by singbridge
The hungry aunties and uncles at agm and the 5sec queue formation after the closure of the Agm are 100% true
Next agm around end April