Yongnam Holdings - CIMB Research 2018-03-02: Strutting To Recovery Amid Rosy Construction Outlook

Yongnam Holdings - CIMB Research 2018-03-02: Strutting To Recovery Amid Rosy Construction Outlook YONGNAM HOLDINGS LIMITED AXB.SI

Yongnam Holdings - Strutting To Recovery Amid Rosy Construction Outlook

  • Yongnam Holdings' FY17 net loss narrowed by 50% y-o-y to S$15.8m due to better margins.
  • Gross loss narrowed by 74% y-o-y to S$3.6m in FY17, hinting at a recovery.
  • Outlook looks bright amid a slew of mega public infrastructure project tenders up for bidding this year.
  • Pursuing S$1.2bn worth of new projects in Singapore and overseas.
  • Maintain ADD with a slightly higher Target Price of S$0.57 as we roll over our valuation to FY19F.



Prep for recovery this year after halving losses y-o-y 

  • Yongnam Holdings' FY17 net loss halved y-o-y to S$15.8m on the back of lower gross loss due to improved margins for ongoing projects, but accounted for 114% of our full-year loss projections.
  • The losses stemmed from low utilisation of strut assets and low project activities, resulting in overhead costs not being fully absorbed. 
  • Revenue in FY17 fell 4.6% y-o-y to S$307m due to lower contribution from its steelworks and mechanical engineering businesses.


Specialist civil engineering sales up 34.4% y-o-y in FY17 

  • This was due mainly to higher contribution from the ongoing Thomson-East Coast MRT project and HK MTR project which involve some strut works. Strutting works and overseas projects typically fetch better margins than structural steelwork due to the specialty skills involved and less competition, respectively. 
  • Management guided that its strutting assets are 37% utilised and expects to achieve c.60-70% utilisation this year, which would more than absorb the overhead costs.


Order book at multi-year low; expect to ramp up this year 

  • Order book stood at S$152m as at end-Dec 17, below its seven-year average of c.S$353m. This excludes S$22.9m order wins in Feb 18. With public construction demand expected to rise in 2018 due to upcoming mega infrastructure projects such as the North-South Corridor, KL-Singapore High Speed Rail and Changi Airport T5, we expect more civil engineering works and its order book to beef up this year. 
  • All in all, Yongnam is currently pursuing S$1.2bn worth of projects in Singapore and overseas.


Maintain ADD with a slightly higher Target Price of S$0.57 

  • We raise our FY18-FY19F EPS by 1.5-2.0% to reflect lower finance costs. 
  • Total debt stood at S$91m as at end-FY17, down from S$107m at end-FY16. Yongnam is currently trading at 0.5x FY19F P/BV, below the long-term average of 0.9x as valuations remain undemanding, in our view. 
  • We maintain ADD with a slightly higher Target Price of S$0.57 as we roll over our valuation base to FY19F, pegged to 0.8x P/BV. 
  • Downside risks include project delays.




Colin TAN CIMB Research | LIM Siew Khee CIMB Research | http://research.itradecimb.com/ 2018-03-02
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 0.57 Same 0.530



Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......



ANALYSTS SAY


loading.......