Yongnam’s performance in 2017 was dragged down by the sluggish performance in construction sector following the downturn in property market. Undeterred by the challenges, shareholders of Yongnam Holdings were rewarded by over 57.4 percent gains in the share price to $0.31 as at 29 December 2017. Backed by the first increase in property prices for the past three years, analysts estimate a recovery in the property market which will uplift the construction sector.
Yongnam is Singapore’s leading versatile engineering and construction service provider with expertise such as structural steelworks and specialist civil engineering. As of now, Yongnam is aiming to win $1.16 billion worth of new infrastructure and commercial projects in Asia and the Middle East, with its current order book standing at $208 million. According to Singapore’s Building and Construction Authority (BCA) projections for 2018, there would be at least $9 billion worth of civil engineering contracts to be undertaken.
In turn, Yongnam has submitted bids for these major public sector infrastructure projects in the short-term, such as North-South Corridor and Circle Line 6 that is expected to be awarded within the two next years. Looking forward, there are upcoming major infrastructure projects such as Kuala Lumpur – Singapore High Speed Rail and Changi Airport Terminal 5, which will drive more opportunities for Yongnam to undertake.
In its latest financial statement 9M17, revenue fell by 6 percent to $239.6 million primarily due to lower contributions from its Structural Steelworks and Mechanical Engineering segment since several projects were near completion. Gross profit fell by 94 percent to $1.2 million, largely due to lower margins from projects and lesser strutting and fabrications activities resulting in a wider net loss of $10.4 million.
All that remains now lies with its ability to secure new contracts since its revenue is project-driven. Assuming that Yongnam is able to secure the majority of the contracts that it has bid, CIMB Research opined that the company may be a turnaround play in FY18.
Inferring from its recent bullish run-up of an 18 percent gain in its share price to $0.36 year-to-date, shareholders of Yongnam remain optimistic despite the company still chalking up losses. Its competitor, TTJ Holdings, also saw its shares rise 8.1 percent to $0.335 year-to-date, but trades at a trailing 12-months price-to-earnings ratio of about 4.54 times. From another viewpoint, taking a look at Yongnam’s current price-to-book ratio(P/B) of 0.657, some investors may perceive that the current share price is trading at a substantial discount.
Investors seeking for a construction-related play might want to take a look at Yongnam as 2018 may be a good year for the management to prove their worth.