Friday, November 15, 2013

Yongnam : No reason to own this stock (CIMB)

Yongnam Holdings
Current S$0.25
Target S$0.20
No reason to own this stock

 The latest financials suggest that contractors are battling a harsh operating environment and YNH is no exception. Without a Myanmar angle and new order book wins, this company faces a bleak future.

3Q13 and 9M13 results were below expectations, at 7% and 58%, respectively, of our full-year forecast. We cut core FY13-15 EPS by 26-37% on lower revenue assumptions from the lack of contracts and margins challenges. Our target price falls to S$0.20 (rolling over to 5x CY15 P/E, its three-year mean). The lack of convincing contract wins and margin squeeze are de-rating catalysts. Maintained Underperform.

No excuses for slippage
The lower-than-expected earnings for the group were a huge let down due to the unfavourable revenue mix and reduced contributions from specialist civil engineering (SCE) (S$39m, -7% yoy). Although contributions from the structural steelwork (SS) segment saw a 92% yoy spike in sales to S$57m, (59% of group revenue), the cost overrun from on-going SS projects was a big negative surprise given YNH’s previous stellar execution track record. We fear this will still be the trend going into 4Q13 with the group’s existing workload.

Watch out for balance sheet discipline
The current outstanding order book of S$229m is glaringly low by YNH’s standards. We note that the group’s contract win rates have decelerated considerably. As the group attempts to catch up on its new awards, we are also worried that any new contracts will come at the expense of margins. Net gearing has risen to 0.4x (from 0.25x nine months ago), although this is less of a concern now given the current cashflow management. But in view of future projects win, balance sheet discipline will become a more important issue.

Maintain Underperform
Without a Myanmar angle as the reason to own the stock, investors are left viewing YNH as a standalone strutting steel provider. But the current earnings environment is not helping to make the case either. Reiterate Underperform.

Source/Extract/Excerpts/来源/转贴/摘录: CIMB-Research,
Publish date: 12/11/13

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