Yongnam Holdings

UobKayhian on 28 Mar 2012

Investment Highlights

·          We re-iterate BUY on Yongnam Holdings (Yongnam) with a target price of S$0.40, pegged to the sector average PE of 8.3x 2012 earnings. Based on Bloomberg’s consensus earnings forecast from four brokers, Yongnam is set to report earnings of S$66.1m (+4.3% yoy) in 2012 with a 12-month target price of S$0.39.

·          Strong financial results and contract wins had failed to incite investor interest as Yongnam’s share price was stagnant in 1Q12. We recommend investors to accumulate the stock on weakness.

Our View

·          Yongnam reported a strong set of earnings for 2011, booking in NPAT of S$63.4m (+16.5% yoy) on revenue of S$332.7m (-0.7%). The company also declared higher-than-expected final dividend of 1.0 S cent for 2011. Yet, the stock barely budged.  

·          The company also announced that it has secured three contracts worth a total of S$52.1m for one specialist civil engineering and two structural steelworks contracts. Yongnam will provide steel strutting and construction decking works for the newUpper Changi station for Downtown Line 3, fabrication of steel components for jack-up structures in the offshore sector and structural steelworks for a business park development located at Portsdown Road/Fusionopolis Way. According to Yongnam, all three contracts are expected to have a positive impact on 2012 earnings. These contracts form 15% of our 2012 projected contract wins of S$350m. 

·          We expect stock outperformance would be driven by contract wins. According to the Building and Construction Authority (BCA), public sector construction demand is likely to contribute S$13b-15b in 2012, driven by institutional building projects as well as civil engineering contracts on the expansion of Kallang Paya Lebar Expressway (KPE)/Tampines Expressway (TPE) Interchange. Leveraging on its strong track record, we project contract win momentum will continue in 2012 due to Yongnam’s strong participation in major infrastructure projects such as MRT Downtown Line 3, Circle Line and Marina Coastal Expressway. The group had secured close to S$300m worth of civil engineering projects in 2011.