Yongnam Holdings - CGS-CIMB Research 2019-01-03: Poised For Robust Recovery This Year


Yongnam Holdings - Poised For Robust Recovery This Year

  • Yongnam’s orderbook ended 2018 at close to S$400m (highest in last three years) after winning S$127m worth of contracts in 4Q18.
  • We anticipate robust profit recovery in FY19F with further strut works (at least c.S$260m) potentially up for grabs this year.
  • Maintain ADD with a lower Target Price of S$0.40.

Orderbook back to healthy level of near S$400m

  • YONGNAM HOLDINGS LIMITED (SGX:AXB) ended 2018 with contracts worth S$73.4m secured in Dec 18, which included the Melbourne contract (c.S$47m). The Melbourne contract will involve strutting works for an infrastructural development and marked Yongnam’s first foray into the Australian market.
  • With total contract wins of S$338m secured in FY18F, the orderbook could be back to healthy level of near S$400m as at end-FY18F, up from a multi-year low of S$152m as at end-FY17.

Profit turnaround in sight; could win further strut works in FY19F

  • With a slew of major orders secured in 2018, we think Yongnam could achieve a profit turnaround in FY19F. Save for one contract (N109A) for the North-South Corridor (NSC) project, Land Transport Authority (LTA) had already awarded the remaining 10 contracts with six given out last month to various firms.
  • We believe Yongnam could still win strutting works as a subcontractor for these NSC sections (see Figure1 in the PDF report attached), which could fuel further profit growth in FY19-20F.

Other major-sized contracts potentially up for grabs ahead

  • Yongnam is also currently in active pursuit of S$1.3bn worth of infrastructure and commercial projects in Singapore and internationally and believes it has a good chance of winning at least S$60m worth of strut works in Hong Kong in FY19F.
  • Major strut contracts that could be up for grabs this year include works for Changi Airport Terminal 5. Other notable mega infrastructure projects potentially in the pipeline in the next few years include Jurong Regional Line and Cross Island Line.

Maintain ADD with lower Target Price of S$0.40

  • Notwithstanding Yongnam’s orderbook recovery from a multi-year low, order wins in 2018 still fell short of our earlier forecasts. We thus revise our FY19-20F EPS forecasts lower by 16-73%.
  • Our Target Price is consequently lowered to S$0.41, pegged to 0.8x FY19F P/BV (10% discount to its long-term average of 0.9x).
  • We remain positive on Yongnam with a view of a robust recovery in FY19F and maintain our ADD call.
  • Key risks include prolonged project delays and lack of major order wins.

Colin TAN CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://research.itradecimb.com/ 2019-01-03
SGX Stock Analyst Report ADD MAINTAIN ADD 0.40 DOWN 0.450