What's changed

Yongnam (YNAM) announced that they are placing 120mil new shares at

S$0.33/share, a 10% discount to YNAM?s last price before suspension on

May 14, 2007. The placement represents 11% and 10% of the existing and

enlarged share capital respectively. Out of the total net proceeds of

S$38mil, c.S$15mil will be allocated for the construction of a new

fabrication facility of about 25,000 tonnes/year in Malaysia and the rest of

the funds will be used for working capital. In addition, Mr. Tan Tin Nam -

the founder of the company is divesting his direct and deemed interest (via

Yongnam Pte Ltd - YPL) of 36mil and 32mil vendor shares respectively.

Implications

We?ve adjusted our TP marginally to S$0.43 from S$0.44 to reflect the

earnings dilution of 2%/4% in FY07/08E. We?re not overly concerned of the

founder?s share sale as (1) he has been taking a back seat in the business

and we believe his decision may have stemmed from his retirement plans,

& (2) the other three active executive directors still collectively have a

decent 9.7% interest in YNAM after the shareholding restructuring. The

positive note is that YNAM?s balance sheet should strengthen substantially

with estimated net D/E of the company lowering from 11X to 0.4X after the

placement. We maintain bullish on Yongnam as we believe it is well

positioned to ride on the construction upcycle given its dominant market

position and solid track record. We see very positive news flow over next

two quarters with construction contracts for the Marina & Sentosa IR

expected to be announced in Jun/Jul 07 & Aug /Sep 07, respectively.

Valuation

The stock is currently trading at 31.6X/15.4X FY2007/2008E P/E, translating

into an attractive PEG ratio of 0.3X versus its peers. Our S$0.43/share 12-m