Yongnam Holdings secures more than S$190m worth of contracts in Q2 2011

• Stronger recognition this year. YNH’s contract wins had picked up strongly in 2Q11, with the group securing more than S$190m worth of contracts or 40% of our target for this year. Coupled with profit margins which had been sustained over the four quarters of 2010 (with a positive surprise in 1Q11), we believe YNH is on track to meet our FY11 earnings target.

No change to our EPS estimates or target price of S$0.40, still based on 8x CY12 P/E, a 20% discount to its mid-cycle multiples. We also like YNH’s undemanding valuations against peers, at 5.2x CY12 P/E vs. the peer average of 7.6x. We expect stock catalysts from contract wins for projects such as the MRT Downtown Line and structural steelwork projects in the Middle East.

• On track to meet FY11 earnings target. Although 1Q11 turnover only accounted for 17.5% of our FY11 forecast, we see two reasons for remaining optimistic on our net profit target of S$60m. First, contract wins had picked up strongly in 2Q11, with the group securing more than S$190m worth of contracts in that quarter, or 40% of our target for this year. Second, profit margins have been both strong and sustainable for 4-5 quarters, with a positive surprise in fact in 1Q11.

• Order-book renewal. We estimate that YNH is bidding for S$1.2bn worth of projects this year. The outlook in Singapore remains underpinned by numerous opportunities in the civil engineering space. The Middle East is another market with considerable infrastructure spending plans. We believe if the political situation stabilises there, construction firms like YNH could stand to reap major benefits.