Here's the biggest negative surprise in Yongnam's third quarter results

Looks like it's not getting any better.

According to CIMB, 3Q13 and 9M13 results were below expectations, at 7% and 58%, respectively, of CIMB's full-year forecast.

CIMB also noted that the latest financials suggest that contractors are battling a harsh operating environment and Yongnam is no exception. Without a Myanmar angle and new order book wins, this company faces a bleak future.

Here's more:

No excuses for slippage
The lower-than-expected earnings for the group were a huge let down due to the unfavourable revenue mix and reduced contributions from specialist civil engineering (SCE) (S$39m, -7% yoy).

Although contributions from the structural steelwork (SS) segment saw a 92% yoy spike in sales to S$57m, (59% of group revenue), the cost overrun from on-going SS projects was a big negative surprise given YNH’s previous stellar execution track record. We fear this will still be the trend going into 4Q13 with the group’s existing workload.

Watch out for balance sheet discipline
The current outstanding order book of S$229m is glaringly low by YNH’s standards. We note that the group’s contract win rates have decelerated considerably.

As the group attempts to catch up on its new awards, we are also worried that any new contracts will come at the expense of margins. Net gearing has risen to 0.4x (from 0.25x nine months ago), although this is less of a concern now given the current cashflow management.

But in view of future projects win, balance sheet discipline will become a more important issue.