Yongnam Holdings (Maybank)

Waiting on the “East Wind”

Alert: Indicative results for Myanmar airports to arrive earlier.

Yongnam’s consortium announced the formal submission of its bid for

the new Hanthawaddy International Airport in Myanmar last week. This

follows upon the bid to extend the existing Yangon International Airport,

which was submitted a month earlier. Based on our latest info, the

indicative results for both will come sooner than earlier expected.

Award for Yangon extension may arrive any moment.

urgent need to ease congestion at Yangon Airport, we understand the

authorities are anxious to start construction. The award for this bid is

expected any moment from now. Separately, we now expect indicative

results for Hanthawaddy by July this year, when the government will

enter into direct negotiation with 1 or 2 preferred bidders.Due to the

50% chance of winning Yangon, add $0.045 to our TP.

estimate Yongnam’s consortium has a 50% chance of winning the

Yangon project, and we add SGD0.045 to our TP based on this

probability. We assign this high probability due to the consortium’s

standout combination of technical expertise, track record and friendly

government ties. Yongnam has an outsized voice in this consortium

due to the structure, and should pick up significant construction work.We now

New 130m term loan – Reading between the lines.

company announced a new 5-year SGD130m syndicated loan. We

understand only around SGD25m is used to replace expiring loans, with

the rest being additional debt if drawn down (net gearing estimated to

go up from 34% to 65%). We are positive because 1) Given that loan

collateral is minimal, this speaks volumes for the banks’ confidence in

the company’s prospects. 2) We think this also implies management is

thinking big in terms of new project wins.Last week, the

You can factor in the Golden eggs.

announcements of the Myanmar airport projects will serve as concrete

near-term share price catalysts. We currently estimate Yongnam has a

25% chance of winning the bigger Hanthawaddy project, though we do

not factor this in. We add SGD0.045 (50% chance of winning Yangon)

to our TP, deriving SGD0.485. Reiterate BUY.We believe the impending

Yongnam Holdings – Summary Earnings Table Source: Maybank KE

FY DEC (SGD m) 2011 2012 2013F 2014F 2015F

Revenue 332.7 301.6 381.1 359.4 368.8

EBITDA 99.1 76.9 93.7 98.2 112.8

Recurring Net Profit 63.4 43.5 55.7 61.3 74.1

Recurring EPS (SG cents) 5.1 3.5 4.3 4.7 5.7

DPS (SG cents) 1.0 1.0 1.2 1.3 1.4

PER (x) 6.9 10.1 7.9 7.2 5.9

EV/EBITDA (x) 3.6 4.3 3.7 4.0 4.0

Div Yield (%) 2.9 2.9 3.4 3.8 4.2

P/BV (x) 1.5 1.3 1.2 1.1 0.9

ROE (%) 21.7 13.5 15.3 15.0 16.0

ROA (%) 11.8 7.6 8.8 10.0 11.2

Consensus Net Profit 56.7 58.7 66.5

airport projects

 

contender for Myanmar’s airport projectsWe believe Yongnam’s consortium is a strong

 

upside to the stock priceYangon’s airport project win could add S$0.12

 

is a strong contender for the projectsCurrent valuations are not reflecting that Yongnam

  Upgrade to BUY with higher TP of S$0.41

Strong contender for Myanmar airport projects.

Yongnam is partnering JGC Corporation and Changi Airport

Planners and Engineers to bid for two airport projects in

Myanmar. We think Yongnam’s consortium stands a good

chance of securing the projects given its Singapore and Japan

representation. JGC corporation is Japan-based while

Yongnam and Changi Airport Group are Singapore-based, all

of which are viewed favourably by the Myanmar Government.

Yangon airport project win likely to boost valuations by

12 S cts.

boost share price by 12 S cts. We estimated that the

construction of the Yangon Airport project could add

S$10.4m or 6 S cts per share to FY14F earnings. Thereafter,

the rights to operate the airport for the next 30 years would

add another 6 S cts to the stock based on discounted

cashflow projection.We believe a win on Yangon airport project could

Upgrade to

Yongnam’s current valuations are only in line with peers, and

not reflecting Yongnam as a strong contender for project

wins in Myanmar. We are convinced Yongnam stands a good

winning chance and thus believe +1SD valuation is

achievable. At +1SD of 10x blended PE, we revised

Yongnam’s TP to S$0.41. Upgrade to BUY for 22% upside.BUY with higher TP of S$0.41. We believe

Yongnam Holdings (KE)

Positioning ahead of contract wins

Regional infrastructure play.

which is shaping up to be a good proxy to benefit from the

unprecedented infrastructure boom in this region. It is estimated that

USD8t will be spent in Asia on infrastructure investment, to support the

transition from export-based economies to domestic consumption.

Yongnam has market leading positions in structural steel and strutting.We reiterate BUY on the company,

Within expectation.

Revenue grew 22% yoy, with the ongoing execution of its orderbook.

Though profit was flat yoy at SGD11.5m, this was in comparison to the

same quarter last year which benefited from exceptionally high gross

margins of 29%. This is only a matter of normalizing margins, and we

are encouraged by the sequential improvement in gross margins, from

20.5% to 24% this quarter.1Q13 results were largely within expectation.

Margins should pick-up slightly from here.

structural steel segment, which generally has lower margins than

strutting, accounted for a bigger proportion of revenue (55%). Margins

should pick up slightly for the rest of the year on execution of strutting

orderbook and the commencement of new contract wins. Notable

ongoing projects for the rest of the year include Marina Coastal

Expressway, Singapore Sports Hub and Hong Kong MTR.This quarter, the

Gunning for several contracts in 2H13.

wins to replenish the orderbook, which now stands at SGD324m.

However, management is optimistic of wrapping up several major

project bids in the 2

new contract wins commence immediately upon award by the main

contractor and will contribute to revenue quickly.Ytd, there has been no ordernd half. It should be noted that in Yongnam’s case,

Reiterate BUY.

to be an interesting period with major contract win catalysts in store. We

adjust our FY13F forecast slightly downward by 2%, but we expect

medium-term growth trajectory to remain unchanged. Our TP of

SGD0.43 is pegged to 10X FY13F PER, with 81% of FY13 revenue

backed by orderbook schedule.We reiterate BUY ahead of 2H13, which is shaping up

Yongnam Holdings – Summary Earnings Table Source: Maybank KE

FY DEC (SGD m) 2011 2012 2013F 2014F 2015F

Revenue 332.7 301.6 381.1 359.4 368.8

EBITDA 99.1 76.9 93.7 98.2 112.8

Recurring Net Profit 63.4 43.5 55.7 61.3 74.1

Recurring EPS (SG cents) 5.1 3.5 4.3 4.7 5.7

DPS (SG cents) 1.0 1.0 1.2 1.3 1.4

PER (x) 6.7 9.8 7.7 7.0 5.8

EV/EBITDA (x) 3.4 4.1 3.6 3.9 3.9

Div Yield (%) 3.0 3.0 3.5 3.9 4.3

P/BV (x) 1.4 1.3 1.2 1.0 0.9

ROE (%) 21.7 13.5 15.3 15.0 16.0

ROA (%) 11.8 7.6 8.8 10.0 11.2

Consensus Net Profit 56.9 58.9 70.2