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Yongnam Holdings Summary

Core Content

Yongnam Holding Ltd. is a Singapore-based engineering and construction company that operates through three segments: Structural Steelworks, Specialist Civil Engineering, and Mechanical Engineering. The company is currently valued at SGD0.295 with a target price of SGD0.40, and the recommendation remains BUY. The stock has a market cap of USD292.3 million and a free float of 73%. Major shareholders include Management & Founders (16%) and Delta Lloyd (11%).

Main Viewpoints

• Strong Position in Local Market: Yongnam is the strongest structural steel player in Singapore and has the largest asset inventory in this segment. It is a key beneficiary of Singapore's infrastructure growth, particularly through MRT projects.
• Healthy Contract Pipeline: Yongnam is tendering for SGD1.3 billion worth of contracts, with SGD670 million specifically for projects in 2H13. The Thomson Line is expected to be developed in three stages, with contracts being announced progressively throughout 2013.
• Infrastructure Growth: The long-term infrastructure growth in Singapore, including new MRT lines, is expected to continue benefiting Yongnam. The government has plans for additional MRT lines, such as the Cross Island Line and Jurong Region Line.
• Orderbook Replenishment: Yongnam's orderbook of SGD266 million is expected to be replenished in 2H13. A significant portion of the existing orderbook (44%) is expected to be completed by year-end, and the company is in talks to resume work on DTL2 with SK E&C.
• Valuation and Earnings: The stock is currently trading at 8.1x FY13F PER, which is considered undemanding compared to its peer Eversendai at 11.3x. Despite a decline in earnings growth, the company has a strong potential for future contract wins and a healthy dividend yield.

Key Information

Financial Highlights

• Revenue (FYE Dec): SGD332.7m (2011), SGD301.6m (2012), SGD327.0m (2013F), SGD310.0m (2014F), SGD366.7m (2015F)
• EBITDA (FYE Dec): SGD99.1m (2011), SGD76.9m (2012), SGD81.7m (2013F), SGD83.9m (2014F), SGD98.1m (2015F)
• Recurring Net Profit (FYE Dec): SGD63.4m (2011), SGD43.5m (2012), SGD45.6m (2013F), SGD41.0m (2014F), SGD51.1m (2015F)
• Net Gearing: 0.38
• NAV/shr (SGD): 0.26
• Interest Cover: 18.8
• ROE (annualised %): 12.1
• Dividend Yield (%): 3.1 (2013F), 3.4 (2012), 3.1 (2011)
• P/BV (x): 1.1 (2013F), 1.3 (2012), 1.3 (2011)
• PER (x): 8.1 (2013F), 9.0 (2014F), 7.3 (2015F)
• EV/EBITDA (x): 1.4 (2013F), 1.2 (2014F), 1.1 (2015F)

Contract and Project Details

• Thomson Line: A 30km MRT line connecting Woodlands to Marina Bay, with an estimated budget of SGD21 billion. Three civil contracts have been awarded so far, totaling SGD861.7 million.
• Downtown Line (DTL): Yongnam has secured SGD200 million in contracts for DTL Stages 2 and 3. The company is in talks to resume work with SK E&C.
• Potential Projects: Yongnam is involved in several projects, including the Hong Kong MTR extension line, KL Metro Line, and other overseas contracts.
• Orderbook: The company's orderbook is expected to be replenished in 2H13, with a focus on structural steel and civil engineering contracts. The orderbook is split 43:57 between structural steel and civil engineering.

Peer Comparison

• Yongnam has a higher gross margin compared to its peers, ranging from 20% to 25%, while others range from 20% to 22%.
• Eversendai has a larger orderbook (approx. SGD544m) but is trading at a higher PER (11.3x) compared to Yongnam (8.1x).
• Yongnam is considered a strong BUY opportunity due to its undervaluation relative to its peers and its potential for future contract wins.

Outlook

• Gross Margins: Expected to have bottomed out and may show slight improvement with new contract wins.
• Earnings Growth: Expected to be driven by contract wins rather than earnings this year, with a focus on replenishing the orderbook.
• Long-term Growth: Yongnam is well-positioned to benefit from Singapore's long-term infrastructure growth, including new MRT lines and underground transport hubs.