SINGAPORE (Apr 10): CIMB is maintaining its "add" on Yongnam with 57 cents target price on expected contract wins from projects such as the North-South Corridor (NSC) tunnelling, KL-Singapore High-Speed Rail (HSR) and Changi Airport Terminal 5 (T5).
Yongnam is also optimistic that on securing the contract for Melbourne Metro, where work could start by end 1H18.
In a Monday report, analyst Colin Tan says the lack of local capability for strut works would give Yongnam a better chance of taking on similar work in Australia, thus building its overseas track record.
Management is also confident of clinching contracts for strut works on various stretches of the North-South Corridor (NSC) this year, which could help Yongnam regain its A1 grading for civil engineering from the Building Construction Authority.
Yongnam is currently graded A2 as it has not done any strut work projects in recent years but regaining its A1 grading will allow the company to bid for public tender contracts of unlimited value.
With 150,000 tonnes of struts which exceeds the combined assets of its three closest competitors, Yongnam believes it is well-positioned to undertake strut works for NSC which could cover $30 million unallocated overhead costs related to struts.
Management estimates that strut works for each of the NSC’s tender packages could involve about 20,000 tonnes of struts with each NSC strut works contract worth $50 million.
Apart from NSC, Yongnam also plans to tender for contracts from the KL-Singapore High-Speed Rail (HSR) and Changi Airport Terminal 5 (T5).
HSR could require 40,000 tonnes of struts while T5 may need 50,000 tonnes of struts and 50,000 tonnes of steel works for decking, based on management’s estimates.
The Singapore side of the HSR will be split into three tender packages according to management, with H205 and H206 packages tenders held on Apr 6. Yongnam believes these could be awarded by end-2018 at the earliest.
CIMB has a 57 cents target price for the stock.
As at 2.22pm, shares in Yongnam are trading at 30 cents or 0.5 times FY18 book value.
