Yongnam

Yongnam: 3Q13 net loss was $3.4m (vs 3Q12 net profit: $10.3m) while revenue rose 33.8% to $95.9m. Increase in revenue was due to contributions from Structural Steelwork projects which scaled up by 92% to $56.8m, from main projects like Singapore Sports Hub, National Art Gallery and Market Street. Revenue from Civil Engineering fell 7.4% y/y to $39m. Cost overruns on 3 Steel Structure projects (MBKE highlights Sports Hub attributes most of the overrun, due to more complicated process than expected) caused gross margins to slide from 25.4% to 8.5%. On top of that a 135.5% increase in general and administrative expenses to $14m mainly due to a non-recurring loss from the disposal of pipe piles utilized in the Specialized Civil Engineering Business. At end Sep, order book stood at $229m. MBKE conservatively estimates a further win of $150m in FY13 and $350m in FY14. Management guided FY 13 profit is expected to be significantly lower than FY 2012. CIMB appears very negative on Yongnam, citing “No reason to own this stock” & “No excuses for slippage” (highlighting poor earnings, unfavourable revenue mix, and cost overruns). Yongnam is trading at 10.4x FY14 P/E, in line with industry peers average of 10.5x. MBKE highlights despite dominance in steel works, slowdown in contract win momentum weighs negatively on earnings outlook (CIMB has the same view). Latest broker ratings as follows: MBKE maintains Hold with TP: $0.24 CIMB maintains Underperform with TP: $0.20 (from $0.25)