Yongnam Holdings trampled by cost overruns

Brace for a 3Q13 operating loss.

Yongnam is expected to report an operating loss in the upcoming 3Q13 due out November 11, due mainly to two factors, according to Maybank Kim Eng.

First, the company is expected to have incurred incurred cost overruns from three ongoing project.

"Based on our channel checks with other industry players, we understand that the cost overruns primarily relate to the Sports Hub that is to be completed by April 2014. This could be due to the complexity of the construction works and tight schedule," said Maybank.

Second, the company is also seen to suffer a "significant" one-off loss on disposal of fixed assets.

This led OCBC to lower its earnings estimates for FY13-15 by up to 37%.

"In view of the upcoming losses, which will dent FY13 earnings, and in the absence of new contracts being secured YTD, we are less optimistic about its earnings prospects," reckons Maybank.

Still, the research firm saw some potential upside in new contracts that may be secured in the coming months.

"We suspect M+S projects will be the key contract. MRT Thomson Line contracts are periodically placed out to main contractors and sub-contracts should be announced in 4Q13, at the earliest. We have factored in S$150m and S$350m new contracts into our FY13-14 forecasts, respectively," said Maybank.