Price (05 Aug 13) S$0.31
Target price S$0.28
Downgrade to Sell: Concerns over Slower Pace of Order Intake
Less Attractive Risk-Reward Profile Amid Slower Order Intake — We downgrade Yongnam from Buy to Sell on the back of  its strong ytd performance (+29% ytd); and  concerns over the pace of order win intake (S$57mn ytd). While the order win outlook remains promising, our downgrade reflects risk that 2013 full-year wins may disappoint as a result of i) further tender delays and/ or ii) lower-than-expected winrate. We reduce our FY13 earnings estimate by 28% to account for  a moderated order win projection (S$250mn from S$380mn);  lower gross margin expectations (23% from 25%); and  the S$5.1mn provision recognized in 2Q13. Our FY14-15E estimates are lowered by 10-14%. We value Yongnam based on an unchanged ~7x FY14E PER, translating to a target price of S$0.28/share.
Order Win Outlook — Yongnam has secured S$57mn worth of contracts ytd, leading to a 2Q13 order backlog of S$266mn (44% expected to be completed in 2H13; recall that 1Q13 was the first time the group's orderbook fell below S$400mn since 2009). The group is bidding for S$670mn worth of projects which are expected to commence in 2H13. Further delays and/or a lower-than-expected win-rate, however, could put revenue outlook in 2H13 and 2014 at risk. In view of strong ytd stock price rally, we believe most positives have already been priced and no longer see risk-reward as attractive. We note that the group's current backlog only provides S$117mn worth of topline visibility in 2H13 (-41% HoH; -19% YoY assuming no further orders).
2Q13 Results — 2Q13 PATMI of S$8.6mn declined 29% YoY (-25% QoQ) on the back of a S$5.1mn provision arising from the group's exposure to Alpine Bau GmbH, a main contractor for Downtown Line 2 that filed for insolvency in June 2013. Excluding the provision, 2Q13 PATMI would have been S$13.7mn (+14% YoY; +19% QoQ). Turnover rose 47.5% YoY to S$115mn, underpinned by a steep increase in revenue contribution from Structural steelwork (S$70.4mn; from S$32.2mn in 2Q12). Gross margin, however, declined to 19.4% (1Q13: 23.8%; 2Q12: 26.3%) as a result of lower than average margins on several projects. The group ended the qtr with NAV of SGcts 26/ shr; net gearing of 0.45x (from 0.34x as at end 1Q13).
Publish date: 05/08/13