Background: Yongnam Holdings is a structural steel contractor and a specialist civil engineering solutions provider with over 40 years of experience in steel fabrication. Over the past five years, its net profit grew by more than 10x from $5.3m in FY06 to $54.4m last year. Changi Airport, Suntec City, Marina Bay Sands IR, major expressways and all the MRT lines are some of its notable projects.
Our View:
Gross margin of over 30%. Yongnam owns approximately 140,000 tons of strutting assets. The high reusability of the modular strutting system it deploys for its civil engineering projects has kept its construction cost low and enables it to enjoy good gross margins. The company posted gross margin of 28.6% last year, vs 22.3% in FY09. Encouragingly, gross margin continued to climb in 1Q11 to 33.2% thanks to increased contributions from civil engineering projects, which offer higher profits.
Strong pipeline of contracts. Yongnam has won contracts for work on every MRT line as well as major expressways. For the Downtown Line (DTL) Stage 2, it has secured $109m worth of contracts to-date. For the Marina Coastal Expressway (MCE), it was awarded six subcontracts worth $363m, or about 8.5% of MCE’s total cost of $4.3b. A strong pipeline of contracts is in store over the next five years. These include sub-contract tenders for DTL Stage 2, DTL Stage 3 projects worth $5b, and the upcoming NorthSouth Expressway which the government has estimated a spending of $7-8b.
Set to outdo itself. Last year, the company secured new contracts worth a total of $240m. This year it looks set to outdo itself, having already won $217m worth of contracts in the first five months, or 90% of last year’s total. As at end-1Q11, it has an orderbook of $410m.
Price-to-earnings: 5.9x
Price-to-NTA: 1.29x
Dividend per share / yield: 0.65 cts / 2.5%
Net debt per share: $0.08
Net debt as a % of market cap: 30%
Share price S$0.26
Issued shares (m) 1,252.8
Market cap (S$m) 325.7
Free float (%) 84.4
YTD change -11.9%
52-wk price range S$0.225-0.32
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