Yongnam Holdings - CGS-CIMB Research 2019-08-14: Building Hope

YONGNAM HOLDINGS LIMITED (SGX:AXB) | SGinvestors.io YONGNAM HOLDINGS LIMITED (SGX:AXB)

Yongnam Holdings - Building Hope

  • Yongnam's 2Q19 results disappointed with wider-than-expected net loss. However, we expect strong topline growth in 2H19F with its orderbook at 5-year high.
  • Given the major upcoming construction projects including NSC and Changi T5, we are optimistic Yongnam would capture more strut order wins this year.
  • We believe the worst is over for Yongnam, and expect the company to break even in 2H19F. Resume coverage with an ADD rating and Target Price of S$0.28.



2Q19 losses wider than expected

  • YONGNAM HOLDINGS LIMITED (SGX:AXB) reported 2Q19 net loss of S$5.9m, mainly due to the low level of strutting amid a dearth of major projects (strut utilisation was 17% in 2Q19), leading to overhead costs not being fully absorbed.
  • Although 2Q losses narrowed both on a q-o-q and y-o-y basis, 1H19 net loss was still much wider than expected at 140% of our full-year forecast.


Orderbook at 5-year high; to drive strong topline growth in 2H19F

  • As at end-Jun, Yongnam's orderbook stood at c.S$400m, of which 36% will involve N103 North-South Corridor (NSC) works in a main contractor role, 40% in specialist civil engineering, and the remaining 24% in steelworks and other works. c.33% of its order book (c.S$134m) is slated for completion in 2H19F.
  • With the commencement of strutting projects including Changi East and N103, we forecast Yongnam to record S$120m revenue in 2H19F (+93.5% y-o-y).


Anticipating further strut works to be won this year

  • We are optimistic Yongnam would capture more strut order wins this year, given the heavy strut demand from the upcoming construction projects including NSC and Changi Airport’s fifth terminal (T5). Besides N103, management is targeting to undertake another 3-4 strut work projects under NSC as a sub-contractor (worth c.S$50m each).
  • The Changi T5 development is also expected to come with a total of three strut packages worth c.S$150m in aggregate (of which Yongnam has already captured one worth S$41.7m).
  • As the largest owner of strut assets in Singapore (c.50% market share), Yongnam is set to ride the wave of recovery in the construction sector, in our view. We forecast Yongnam’s orderbook to expand further to S$486m at end-2019F.


Resume coverage with ADD rating and Target Price of S$0.28

  • We believe the worst is over for Yongnam. We anticipate the company to achieve breakeven in 2H19F, and look towards a possible earnings recovery in FY20F.
  • We resume coverage with an ADD rating and Target Price of S$0.28, based on 0.61x FY19F P/BV (0.5 s.d. below its 10-year historical average).
  • Potential catalysts include announcements of major contract wins.
  • Key downside risks to our call include project delays.





ONG Khang Chuen CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://research.itradecimb.com/ 2019-08-14
SGX Stock Analyst Report ADD MAINTAIN ADD 0.26 DOWN 0.330



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