Pitfalls of Economic Moats

General Finances
By JingCheng Woo,

In the previous two articles, we discussed what a moat has to do with the economy (Part 1), as well as Economic Moats in Singapore (Part 2).

In this article we will analyse a case study about a company that lost its economic moat and the reasons behind its decline.

Hyflux Ltd (SGX:600)

NEWater is introduced on Singapore’s 37th National Day, marking its official debut in front of the nation. NEWater has been a staple item in the NDP funpacks ever since. True to our little island’s spirit of tenacity and self-sustainability, this “pangsai”(shit) reclaimed drinking water adds an innovative stroke to our Waste-to-Energy (WTE) efforts.

In 2001, Hyflux, a global environmental solutions company listed on the SGX, secured its first municipal water treatment project in Singapore to supply and install the process equipment for the country’s first NEWater plant. Other key projects included Singapore’s first seawater reverse osmosis desalination plant among other ventures in the energy sector.

(Remember your school “excursion” to the Newater Visitor Centre? :P)

On the evening of 22 May 2018, Hyflux seeked court protection for debt reorganisation. Hyflux has since voluntarily suspended the trading of its shares and securities since 23 May 2018.

What exactly happened to the juggernaut of desalinated water? In short ⏤ overleveraging (taking on too much debt).

Image credit: Google stock chart.  (Hyflux’s shares has been tanking since 2011 and show no signs of recovery.)

Hyflux has been generating negative cash flows from its operation since 2010. To make matters worse, touted to be the first in Singapore and Asia to implement the Integrated Water and Power Project, Hyflux was expected to raise efficiency levels and reduce the cost of desalination. As a result, they increased their debt level and this started their decline in revenue.


When investing, always look for fundamentally sound companies to invest your hard-earned cash. Never assume that companies with economic moats won’t falter. At the end of the day, diversify, and don’t put all your eggs in one basket.

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Disclaimer: This article is not investment or financial advice. All examples listed are for educational purposes. Contents are reflective of personal views and readers are responsible for their own investments and judgements. Readers are advised to consider their own financial situations and perform their own independent due diligence.

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