Why Yongnam Holdings has a 50% chance of winning Yangon project

Maybank sees 3 standout reasons.

According to Maybank Kim Eng, Yongnam Holdings has a high probability of bagging the lucrative Yangon extension project due to the company consortium’s "standout combination of technical expertise, track record and friendly government ties." The research firm also cited how Yongnam has an "outsized voice in this consortium due to the structure, and should pick up significant construction work."

Here's more from Maybank: 

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. Due to the 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.

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

New 130m term loan – Reading between the lines. Last week, the 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.

You can factor in the Golden eggs. We believe the impending 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.