Slow down. Bend ahead.
▊ The lack of new, chunky contract wins and recent share-price weakness have prompted us to turn bearish. The margin squeeze has become a mainstay, while the Myanmar angle might no longer be the reason to own the stock. The 2H13 results were below our expectations, at 46% of our full-year forecasts. We cut core FY13-15 EPS by 22-35% to assume a lower revenue mix from the higher-margin division. Thus, our target price (6x CY14 P/E, its three-year mean) drops to S$0.28. Lack of convincing contract wins and squeeze on margins are de-rating catalysts despite Myanmar angle. Downgrade to Underperform from Outperform.
Results lack bite
Contributions from the structural steelwork (SS) segment lifted 2Q13 revenue to S$115m (+48% yoy). This division saw a 119% yoy spike in sales to S$70m, accounting for 61% of group revenue. However, the resultant lower-than-expected earnings for the group was a letdown due to the unfavourable revenue mix and reduced contributions from specialist civil engineering (SCE) (S$45m, -3% yoy). Despite the one-off provision (S$5m) related to Alpine’s insolvency, the core earnings left a lot to be desire. We believe this will still be the trend going into 2H13 with the group’s existing workload.
Order book depleting
We note that contract win rates have decelerated considerably for the group. The current outstanding order book is glaringly low by YNH’s standard at S$266m. 44% of this order book will be run down in 2H13, meaning that the group must not slip up on any new contract awards, be it local or overseas. But will that come at the expense of margins?
Rating downgraded to Underperform
The share-price surge in the last six months has been built on a blue-sky outcome in Myanmar. Challenges here could cause its share price to retrace to range-bound levels again. The current earnings environment does not help. Downgrade to Underperform from Outperform.
Publish date: 06/08/13