Still in the red: Yongnam hit with fourth straight quarter of losses in Q3

It booked a $8.4m loss last quarter.

Yongnam continued to disappoint its shareholders after reporting losses for the fourth consecutive quarter in Q3.

Yongnam reported a loss of $8.4m last quarter, coupled with a 51% decline in revenue to $47.3m. Its gross losses widened from $2.9m in Q2 to $5.9m in Q3. According to CIMB, Yongnam is expected to end FY14 in the red.

“The previous three quarters suffered the same set of problems - ongoing projects were insufficient to match the contribution from the MCE projects that were completed last year. A higher interest burden through more borrowings and deteriorating margins all contributed to a gross loss of S$5.9m in 9M14 -definitely a wash-out FY14 for Yongnam,” noted CIMB.

Here’s more from CIMB:
3Q14 losses were expected. Although 9M14 losses appear deeper than our FY14 forecast due to lack of contracts until now, the contribution of various structural works projects in Singapore and HK in 4Q will stem the losses experienced in FY14. 

We make drastic cuts to our FY15 estimate for margin pressure given the current pressing environment but believe the group should return to black then. We lift the FY16 number, assuming work at the Myanmar airport and on other public infrastructure in Singapore begins. 

Our target price rises slightly after we roll forward to CY16 P/E, still based on 8x, 1.5 s.d above its five-year mean. We worry about steel stock pile increases and the lack of traditional high-yield contracts. Margin squeeze is a potential de-rating catalyst.