Yongnam Holdings - CIMB Research 2018-03-15: Hopeful For Contracts

Yongnam Holdings - CIMB Research 2018-03-15: Hopeful For Contracts YONGNAM HOLDINGS LIMITED AXB.SI

Yongnam Holdings - Hopeful For Contracts

  • Yongnam/Leighton Contractors JV has been shortlisted as the potential contractor for the North-South Corridor (tunnel) package N103, with the lowest bid of S$553.8m.
  • In addition to a 30% stake in the main contractor job, Yongnam could be entitled to c.S$50m of strutting work, based on our estimates.
  • We expect the contract to be finalised in next 1-2 months and significant revenue recognition to start in 1Q19F.

Shortlisted for N103 with the lowest bid of S$553.8m

  • Together with Leighton Contractors, Yongnam has been shortlisted as the potential contractor for the design and construction of the North-South Corridor (tunnel) between Kampong Java Road and Suffolk Walk. The JV submitted the lowest bid of S$553.8m. Other contenders are Joh Holland/McConnel Dowell South East Asia JV (with a bid of S$599.7m) and Shanghai Tunnel Engineering/Bachy Soletanche Singapore JV (S$632.9m).
  • We expect net margins for the main contractor to be in the single-digit range. Earnings contribution will be recognised via equity accounting and would only be significant in 2019-21F, based on our estimates.
  • Gross margins for strutting work would be around 20%, in our view.

Potential to win other strutting work from Samsung

  • Separately, the N107 package for the North-South Corridor project saw the second-lowest bid (S$602.6m) submitted by Samsung C&T (028260 KS, Not Rated), behind Sinohydro (Unlisted).
  • In addition to N107, we believe Yongnam is in talks with Samsung to potentially take on subcontractor strutting work for the N106 project that Samsung won in Nov 2017, with a bid of S$809.4m.

S$1.2bn of projects in tender, expect order book recovery in FY18F

  • According to the company, Yongnam is tendering for S$1.2bn of new projects in Singapore and overseas currently. 
  • We estimate its order book now stands at c.S$175m, including the S$22.9m order wins in Feb 2018. If we include the N103 main contractor portion of S$166m (30% of S$553.8m) and struts (S$50m), Yongnam’s current order book would be boosted to S$391m, in line with its historical 7-year average of S$353m. 
  • We expect to hear of Yongnam winning new overseas projects, including Melbourne Metro strutting work, in the near term.

Maintain ADD and target price of S$0.57

  • Yongnam is trading at 0.5x FY18F P/BV and 6x FY19F P/E, below its long-term average of 0.9x P/BV and 9x forward P/E (during the profitable years). 
  • Maintain ADD and target price, based on 0.8x FY19F P/BV (10% discount to its long-term average).
  • More contract announcements are potential key catalysts. 
  • Project delays are the key risk.

Colin TAN CIMB Research | LIM Siew Khee CIMB Research | http://research.itradecimb.com/ 2018-03-15
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 0.570 Same 0.570