Yongnam Holdings Ltd:
FULLY VALUED (downgrade from BUY); S$0.31;
Weak margins, slow order book
Price Target : 12-Month S$ 0.28 (Prev S$ 0.41)
•2Q13 results below expectations on weak margins
•Delay in Yangon Airport tender results weakens near term catalyst
•Poor outlook as margins remain pressured and order book shrinks; cut FY13F/FY14F earnings by 44%/25%
•Downgrade to FULLY VALUED, TP lowered to S$0.28
Below expectations. 2Q13 results were below expectations. Net profit declined by 29% to S$8.6m, despite sales growing by 47% to S$115.1m. This was due to lower gross margins and a S$5m provision as one customer involved in 2 packages of Downtown Line work filed for insolvency. 1H13 earnings now stand at S$20m, making up 36% of our previous full year estimate of S$55.7m.
Winning bidder for Yangon Airport project yet to be announced. Myanmar’s Department of Civil Aviation has yet to announce the winning bid since the end July deadline. We believe sentiment for the stock could wane if the winning bid is not announced within a reasonable period of time, or if Yongnam does not win the project. We have not factored any financial impact of this project into our estimates.
FY13/14F earnings slashed by 44%/25%. As we envisage a weaker outlook ahead on lower order book and weak margins, we cut FY13F/FY14F earnings by 44%/25%. We believe core earnings growth will be slightly negative in FY14F on the back of low project wins in 1H13 before picking up in FY15F on Thomson Line’s contribution.
Downgrade to FULLY VALUED, TP lowered to S$0.28. We recognize that Yongnam is still in the running for the Yangon Airport project since results have yet to be officially announced. As such, we continue to value the stock at 10x forward earnings. Rolling over to a lower FY14F earnings base, our TP is cut to S$0.28. Downgrade to FULLY VALUED.
Publish date: 06/08/13