Yongnam Holdings - CIMB Research 2018-04-09: Expect More Contract Wins In 2018

YONGNAM HOLDINGS LIMITED AXB.SI

Yongnam Holdings - Expect More Contract Wins In 2018

Yongnam is optimistic on winning orders from North-South Corridor (NSC) and Melbourne Metro.
It is also eyeing potential contracts from High Speed Rail (HSR) and Changi T5.
The shares currently trade at 0.5x FY18F P/BV. Maintain ADD with Target Price of S$0.57.

Yongnam is optimistic that on securing the contract for Melbourne Metro, work could start by end-1H18F. The lack of local capability for strut works would give Yongnam a better chance of taking on similar work in Australia, thus building its overseas track record.

Management is confident of clinching contracts for strut works on various stretches of the North-South Corridor (NSC) this year, which could help Yongnam regain its A1 grading for civil engineering from the Building Construction Authority.
Recall that Leighton-Yongnam JV is shortlisted for the N103 package (NSC tunnel between Kampong Java Road and Suffolk Walk) with the lowest bid. Yongnam is optimistic on winning the tender and could take on strut work as sub-contractor for other parts of NSC (N106, N107).
Yongnam is currently graded A2 as it has not done any strut work projects in recent years, according to management. Regaining its A1 grading will allow the company to bid for public tender contracts of unlimited value.

Yongnam has 150,000 tonnes of struts which exceeds the combined assets of its three closest competitors, i.e. less than 100,000 tonnes, according to management.
Yongnam believes it is well-positioned to undertake strut works for NSC and could see optimal utilisation of its struts by FY19F, which could cover c.$30m unallocated overhead costs related to struts.
Management estimates that strut works for each of the NSC’s tender packages could involve c.20,000 tonnes of struts. It said each NSC strut works contract could be worth c.S$50m.

Apart from NSC, Yongnam also plans to tender for contracts from the KL-Singapore High-Speed Rail (HSR) and Changi Airport Terminal 5 (T5).
HSR could require c.40,000 tonnes of struts while T5 may need c.50,000 tonnes of struts and 50,000 tonnes of steel works for decking, based on management’s estimates.
The Singapore side of the HSR will be split into three tender packages according to the management, with H205 and H206 packages tenders held on 6 April 18. Yongnam believes these could be awarded by end-2018 at the earliest.

Our target price of S$0.57 is based on 0.8x FY19F P/BV – a 10% discount to its longterm average. The shares are currently trading at 0.5x FY18F P/BV.
Key catalysts are contract wins announcements.
Key risks include project delays.

Colin TAN CIMB Research | LIM Siew Khee CIMB Research | http://research.itradecimb.com/ 2018-04-09

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