Yongnam

Yongnam: Citi maintains Buy with $0.29 TP. House recently met up with Yongnam’s mgt for an update on the company, who highlighted several few key takeaways below: 1) Updates on Delayed Projects: Start-up delays on two major Structural Steelwork projects had a negative impact on the group’s turnover in 1Q12 (S$67m; -10% YoY; -24% QoQ). One of the affected projects has already commenced while the other is expected to do so by late 2Q12/ 3Q12. This should underpin the strong sequential rebound in group revenue over the next two qtrs. 2) Margin Guidance: While gross margins have moderated following the completion of several higher-margin projects in FY11, mgt believes 1Q margins (of 29.3% vs 4Q11:31.8%; 1Q11:33.2%) to be reasonably indicative of project profitability for the full year. 3) Order Win Prospects: Mgt continues to be upbeat on the group’s order win prospects, reiterating Yongnam’s participation in bids for $1.3b worth of potential projects (40% local; 60%overseas) scheduled to be awarded over the course of the year. Should grp maintain its historical market share (win-rate of >50% for SG projects and 20-30% overseas), order wins for the full year may materially exceed house $350m estimate. Given ytd wins of S$74mn, however, FY12E order wins may be back-end loaded. Order backlog as at end 1Q12 was S$469mn. Overall, house think Yongnam will be relatively better insulated from any potential economic slowdown in the foreseeable future, given its substantial exposure to several largescale government-funded projects in the pipeline.