SINGAPORE (Mar 2): CIMB is keeping Yongnam Holdings at “add” as the steel structure support specialist pursues $1.2 billion worth of new projects in Singapore and overseas.
The research house is also raising its target price to 57 cents after rolling over its valuation -- pegged to 0.8 times book value -- to FY19 and raised FY18-19 EPS by 1.5-2% to reflect lower finance costs.
"Outlook looks bright amid a slew of mega public infrastructure project tenders up for bidding this year," says analyst Colin Tan in a Friday report.
After the halving of its losses to $15.8 million in FY17, Tan expects the group to prepare for recovery and ramp up its order book, which is currently at a multi-year low of $152 million as at end FY17.
See: Yongnam FY17 losses cut by half to $15.8 mil on improved project margins
Due to upcoming mega infrastructure projects including the North-South Corridor, KL-Singapore High Speed Rail and Changi Airport T5, public construction demand is expected to rise this year, supporting Tan’s view that the group will see more civil engineering works and a beefing-up of its order book this year.
“Strutting works and overseas projects typically fetch better margins than structural steelwork due to the specialty skills involved and less competition, respectively. Management guided that its strutting assets are 37% utilised and expects to achieve c.60-70% utilisation this year, which would more than absorb the overhead costs,” he adds.
As at 3.29pm, shares in Yongnam are trading 1 cent lower at 30 cents, or 0.52 times FY18 book.