SINGAPORE (Mar 16): CIMB is maintaining its “add” call on Yongnam Holdings with a target price of 57 cents.
This came on the back of the group being shortlisted as the potential contractor for the North-South corridor (tunnel) package N103 between Kampong Java Road and Suffolk Walk.
In a joint venture (JV) with Leighton Contractors, they submitted the lowest bid of $553.8 million.
Other contenders are Joh Holland-McConnel Dowell South East Asia JV, with a bid of $599.7 million and Shanghai Tunnel Engineering-Bachy Soletanche Singapore JV, with a bid of $632.9 million.
In a Thursday report, analyst Colin Tan says, “We expect net margins for the main contractor to be in the single-digit range. Earnings contribution will be recognised via equity accounting and would only be significant in 2019-21F, based on our estimates.”
In addition, the group is also in the running to win other strutting work from Samsung Construction & Trading (Samsung C&T).
Separately, Samsung C&T put in the second-lowest bid in the N107 package for the North-South Corridor, submitting $602.6 million, trailing behind Sinohydro.
The analyst believes that the group is currently in talks with Samsung C&T to take on subcontractor strutting work not just for the N107, but also for the N106 project that Samsung C&T won in Nov 2017, with a bid of $809.4 million.
Meanwhile, the group is currently tendering for about $1.2 billion of new projects in Singapore and overseas.
Including the group’s order wins in February that amounted to $22.9 million, the analyst estimates that its order book currently stands at $175 million.
“If we include the N103 main contractor portion of $166m and struts ($50 million), Yongnam’s current order book would be boosted to $391 million, in line with its historical 7-year average of $353 million. We expect to hear of Yongnam winning new overseas projects, including Melbourne Metro strutting work, in the near term,” says Tan.
Yongnam is trading at 0.5 times FY18 book and 6 times FY19 earnings, below its long-term average of 0.9 times book value and 9 times forward earnings during its profitable years.
As at 11.45am, shares in Yongnam are trading at 32 cents.
