SINGAPORE (Oct 26): CIMB is initiating Yongnam Holdings at “add” with target price of $0.53, based on 0.8 times FY18 P/BV which is a 10% discount to long-term average.
In a Thursday report, analyst Lim Siew Khee feels Yongnam is inexpensive, at 5x FY19 P/E and 0.5x FY18 P/BV.
“We believe the rising asset turn and utilisation should create shareholder value and narrow the gap between market value and book value,” says Lim.
“We apply a 10% discount to the long-term average of 0.9x to factor in a certain degree of uncertainty in project awards. Our target price implies a forward P/E of 9x, within its own trading band during the profitable years. Rerating catalysts include construction sector upturn.”
Yongnam has long-standing relationships to supply structural steel and struts systems to support deep excavation works for main contractors that are responsible for the building of infrastructure and iconic projects in Singapore.
The notable projects include the Skypark in Marina Bay Sands, Art Science Museum, Marina Coastal Expressway, Gardens By the Bay, Outram Community Hospital and Jewel Changi Airport, and MRT Thomson Line.
LTA is expected to award some 11 packages of civil contracts for NSC worth $15 billion, starting end-2017 till 1H18. Yongnam and its JV SK E&C is one of the six bidders tendering for N106 main contractor package.
Yongnam’s bid was $952-965 million. NSC is a 21.5km expressway connecting the northern region with the city centre, comprising 12.3km of tunnel and 8.8km of viaduct, to be completed by 2026. Construction work is set to begin in 2018. Total struts work for the entire NSC is worth at least $500 million.
Including NSC, Yongnam aims to tender for at least $1.16 billion worth of projects in Singapore and overseas, to be awarded from now till 2018. This would provide enough work for the next three years.
Overseas projects in tender include Melbourne Metro, HK MTR, Tuen Mun – Chek Lap Kok Link and Central Kowloon Route. Having a firm track record locally, Yongnam is also well positioned to tender for longer-term infrastructure projects, such as the High-Speed Railway and Terminal 5 in 2019-2020.
Yongnam is sitting on 208,000 tonnes of struts assets and steel fabrication capacity of 84,000 tonnes p.a. The book value of its struts was $242 million or $0.46/share) or $1,160/tonne at end FY16.
The multi-year losses since 2014 were due to low struts utilisation of 30% from the completion of major projects and general slow-down in the construction scene in Singapore, says Lim.
“We expect an earnings upswing in FY18-19F on higher utilisation (50-60%) if our order targets ($535 million in 2018, $435 million in 2019) are achieved,” she adds.
Shares in Yongnam are trading 3 cents higher at 33 cents or 0.57 time FY17 book value.