The news: Yongnam (YN) announced that it has been awarded specialist civil engineering subcontracts for the Hong Kong Section of the Express Rail Link valued at HK$300m (~S$49m). The two sub-contracts are part of the 26-km long Hong Kong Section of the GuangzhouShenzhen-Hong Kong Express Rail Link which runs from West Kowloon in Hong Kong to the boundary with Shenzhen, People’s Republic of China. The Express Rail Link, expected to complete by 2015, will connect with the 16,000-km National High-speed Railway Network and will enhance Hong Kong’s role as the southern gateway to the Mainland, China. Work on the sub-contracts is expected to be completed in 2013.
Our thoughts: We believe this latest contract win will beef up YN’s track record in specialist civil engineering projects and help boost its profile overseas. The contract is expected to have a material impact on YN’s financial performance for FY11. While we do not have a rating for this stock currently, we maintain our overweight recommendation on the construction industry, on the back of sustained construction demand with various mega public projects being rolled-out such as the Downtown Line 3 and the government’s intention of building more public housing. Companies that we believe will benefit from the pipeline of projects include BBR Holdings (BUY, TP S$0.52), Kian Ann Engineering (BUY, TP S$0.31), KSH Holdings (BUY, TP S$0.31) and Lian Beng Group (BUY, TP S$.0.67).
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