Tuesday, August 6, 2013

Yongnam

Yongnam: 2Q13 results slightly below street expectations; Earnings dropped 28.6% y/y to $8.6m despite revenue climbing 47.5% to $115.1m, as a result of a $5.1m provision for its exposure to Alpine Bau GmbH, the main contractor for MRT Downtown Line 2 that became insolvent in the quarter. Excluding the one-off provision, earnings would have gained 13.3% y/y to $13.7m. The strong revenue was mainly due to an impressive 118.6% gain from its structural steelwork segment to $70.4m, resulting from on-going projects like the Singapore Sports Hub, National Art Gallery, Suntec City Convention Centre, Market Street and the belt conveyor structure project in Malaysia. Gross margin fell to 19.4% q/q from 23.8% due to a lower revenue mix from higher margin specialist civil engineering projects and lower margins from some structural steel projects. According to Maybank KE, house expects margins to improve going forward from better-priced new contracts as well as more revenue from strutting. Group's gearing increased to 50% from 37% at FY12; outstanding order book of $266m is fairly thin based on its leading position in Southeast Asia. Yongnam is actively pursuing $1.3b worth of infrastructure and commercial projects in Singapore, Hong Kong, Malaysia, India, Indonesia and Middle East. The structural steel specialist is also looking to diversify into infrastructural development on a build-operate-transfer basis to establish new and recurring revenue streams going forward, as the steel construction industry is becoming more competitive. However, CIMB reckon Yongnam's lack of convincing contract wins and squeeze on margins are de-rating catalysts despite its Myanmar angle. Maybank KE has a BUY rating with TP of $0.465; CIMB downgraded the counter to UNDERPERFORM with TP of $0.28; Bloomberg estimates 12-month TP of $0.38.

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