BUY S$0.24
Price Target : S$ 0.36 (Prev S$ 0.38)
At a Glance
• 2Q11 net profit of S$15.1m in line with estimates
• 4 new contracts worth S$193m have been secured in 2Q11; underpin earnings growth in FY11/12
• Expect catalysts from Downtown Line 3 contracts
• Maintain BUY with slightly lowered TP of S$0.36
Comment on Results
Margins continue to hold up. Yongnam delivered another record quarter, as net profit grew 13% to S$15.1m in 2Q11. 1H11 earnings now make up close to 51% of our full-year forecast. 2Q11 revenue was down marginally by 2% to S$82.5m though, as contributions from the Structural Steel (SS) segment declined, with the completion of many key projects last year. With higher contribution from high-margin Specialized Civil Engineering (SCE) business, gross margin remained robust at 29.6% up from 29.0% in 2Q10. The Group will continue to keep staff costs in check through higher productivity. Yongnam is also a beneficiary of a weaker US$ as some of its material costs like steel are denominated in US$ whereas revenues are mainly in S$.
Recommendation
Orderbook improves to S$509m. About 63% of the orderbook comprises SCE projects, and SCE segment’s contribution to revenues will likely overtake SS segment by 2H11. 31% of this orderbook will be recognised in 2H11, and management expects to sustain the strong performance in 2H11, underpinned by existing orderbook and healthy margins. We keep our numbers unchanged and expect 11% EPS CAGR over FY10-12. The stock is now trading at less than 5x PE, and appears significantly undervalued. We remain bullish on the Company's prospects, and maintain our BUY call. Our TP is adjusted to S$0.36 (7x blended FY11/12 PE). More contract wins, especially from the Downtown Line 3 projects in the next 6-12 months, should provide further catalysts to the share price. The Group is also pursuing overseas projects in HK (MTR, HKZhuhai- Macau bridge), India and Malaysia in the near term.
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