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.

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.

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.

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.

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