Yongnam Holdings

Yongnam Holdings > Add

CGS CIMB Research, March 15

March 16 close: S$0.31

Target price: S$0.57

TOGETHER with Leighton Contractors, Yongnam has been shortlisted as the potential contractor for the design and construction of the North-South Corridor (tunnel) between Kampong Java Road and Suffolk Walk. The JV submitted the lowest bid of S$553.8 million.

We expect net margins for the main contractor to be in the single-digit range. Earnings contribution will be recognised via equity accounting and would only be significant in 2019-21F, based on our estimates. Gross margins for strutting work would be around 20 per cent.

According to the company, Yongnam is tendering for S$1.2 billion of new projects in Singapore and overseas currently. We estimate its order book now stands at around S$175 million, including the S$22.9 million order wins in Feb 2018.

Yongnam is trading at 0.5 times FY18F price to book value (P/BV) and 6 times FY19F price earnings (P/E), below its long-term average of 0.9 times P/BV and 9 times forward P/E (during the profitable years). More contract announcements are potential key catalysts. Project delays are the key risk.

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