Yongnam Holdings - CIMB Research 2018-01-04: Major Order Win Catalysts Ahead

YONGNAM HOLDINGS LIMITED AXB.SI

Yongnam Holdings - Major Order Win Catalysts Ahead

Yongnam is a likely beneficiary of Singapore’s construction sector recovery, in our view.
Potential major order wins amid robust prospects from NSC and other upcoming infrastructure projects in 2018F could lead to earnings recovery.
Maintain Add and TP of S$0.53.

Though the group reported a net loss of S$10.5m for 9M17 due to lower strutting and fabrication activity levels, several near-term catalysts that could turn things around lie ahead as the bulk of tender packages from the Land Transport Authority’s NorthSouth Corridor (NSC) project are up for grabs in 2018F.
Yongnam owns the biggest strutting asset base in Singapore and according to management, total strut work for the entire NSC (worth at least S$500m) would be more than the level it could take on in a single year. Thus, we believe the group could clinch at least 50% of the strut jobs, which should significantly boost the overall utilisation of its strut and greatly strengthen its order book (S$208m as at 30 Sep 2017).
Using existing capacity, Yongnam aims to tender for c.S$1bn worth of projects in Singapore and overseas for 2018-19F award.

The scope of works for the civil engineering of NorthSouth Corridor (NSC) is to design and construct a tunnel between Novena Rise and Toa Payoh Rise.
While Yongnam failed to win the tender bid for this job, it could still take on the sub-contractor role for the strutting works given its long-established relationship with Samsung C&T Corp, which won the bid for S$809m. This has already been factored into our forecasts.

Other major project opportunities for sub-contractor works include Kim Chuan Depot Extension as part of the overall works for the Circle Line 6 project and the Melbourne Metro Tunnel project.
Woh Hup, which is the appointed main contractor for the Kim Chuan Depot Extension, is one of Yongnam’s long-term contractors.
Management expressed optimism of winning contracts from the two abovementioned projects and we expect to hear of contract awards for them in early-2018F.

Net gearing stood at 0.3x as at end-Sep 2017 with a total debt of S$96.9m.
The group recently completed the placement of 47.5m new shares to raise S$11.9m in net proceeds for the purpose of working capital, which we believe could be used to take on major infrastructure works ahead.

Yongnam is our preferred pick in Singapore’s construction sector given its track record and specialised strength which could give it better chances in taking on strut works for NorthSouth Corridor (NSC) as well as other upcoming major infrastructure projects.
Our target price of S$0.53 is based on 0.8x FY18F P/BV.
Downside risks could come from project delays that could lead to lower utilisation of its struts.

Colin TAN CIMB Research | LIM Siew Khee CIMB Research | http://research.itradecimb.com/ 2018-01-04

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