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OUTPERFORM Maintained S$0.25 @07/12/09 Target: S$0.47 Construction Maintain Outperform; target price raised to S$0.47 from S$0.44. YNH had a record order book this year and its FY09 net profit is expected to reach new heights. We keep our Outperform rating as we believe 2010 will be an even better year. We have upgraded our FY10-11 EPS estimates by 7-8% to factor in higher contract-win expectations. Accordingly, our target price rises from S$0.44 to S$0.47, still based on 10x CY11 P/E, at the lower end of its mid-cycle multiples.
We expect stock
catalysts from the announcement of significant contract wins. Order book can scale new heights. YNH is bidding for more than S$1bn worth of contracts. We highlight five major projects which we believe YNH could win, including Singapore Sports Hub, Downtown Line, Jurong rock cavern and Oman Airport Terminal Building. Based on our estimates, if YNH meets our expectations, its order book at end-2010 could breach the S$600m mark. Margins may dip. Going into 2010, a slowing industry growth rate and intensifying competition in the construction sector are likely to put pressure on project fees and hence margins. We expect YNH’s gross margins to dip, mitigated by a strong competitive position and a more favourable project mix. 2010 outlook Construction sector growth slowing. 2008-09 were good years for the Singapore construction sector, thanks to S$24bn and S$35bn worth of contracts awarded in 2007 and 2008. Growth in this sector has started to decelerate, growing only 13% yoy in 3Q09, down from 24% and 19% in the first two quarters. This downshift is expected to continue in 2010, as fewer contracts would be dished out. As at end-Oct 09, only S$17bn of contracts had been awarded, while expectations for the full year are S$18bn- 20bn. The projection for 2010 is S$15bn-17bn. Despite the lower growth rates, we believe that contractors with strong market positioning can still do well, such as YNH, which boasts a commendable track record and is a leader in its business segments. In 2009, YNH participated in two mega-projects, namely Marina Bay Sands integrated resort (MBS IR) and Marina Costal Expressway (MCE). In structural steelwork, YNH won nine contracts for the MBS IR worth more than S$340m. Another noteworthy steelwork contract win was the S$58m “Gardens by the Bay” project, awarded by Woh Hup in Aug 09. The collapse of the Nicoll Highway in Apr 04 had led to a preference for YNH’s modular strutting systems for deep excavation support in projects like the Circle Line and Kallang-Paya Lebar Expressway. Since then, revenue contributions from its specialist civil engineering division have been growing steadily. In 2009, YNH was eligible to bid for five out of six MCE contracts as sub-contractor. The company recently won its fourth MCE contract in Nov 09, with total wins beating management’s earlier expectations of winning half the bids. We believe YNH’s extensive involvement in these iconic projects will be a major boost to its credentials, leading to a higher probability of landing mega-contracts in 2010.
Potential contract wins in 2010 More than S$1bn worth of contracts up for grabs. Following a recent meeting with management, we believe YNH is bidding for contracts worth more than S$1bn. We believe it stands a chance of winning some of these projects in 2010. These include: Marina Costa Expressway. With the recent announcement of its fourth MCE contract win, YNH is awaiting the outcome of the last MCE contract, C482. Project C482 is considerably complex and management estimates that YNH’s participation, if awarded, could yield contract fees of S$60m-80m. Considering the fact that YNH is involved in every other underground MCE project, we believe it stands a very good chance of capturing this contract. YNH expects a contract award to be made known by 1Q10. Singapore Sports Hub. Construction of this first and largest integrated sports facility in the world has been delayed again and again. However, in Nov 09, newswires reported that the winning bidder, Singapore Sports Hub Consortium (SSHC), has sent out request-for-proposals for debt financing to some banks. Construction is expected to begin in 1Q10 and will take about four years to complete. We believe YNH can win work for this project for two reasons: 1) YNH has a long-standing working relationship with Dragages Singapore, the leading member of SSHC; and 2) extensive involvement in the MBS IR. We believe its track record would make a difference to its bid. The contract for the Sports Hub could be worth S$150m-180m. Downtown Line, stage 2. A total of 12 stations will built by 2015 for Downtown Line stage 2. The total contract value for the 12 stations is estimated at S$400m-500m. Management expects to win 50% of these contracts, and in our view, this is a realistic assumption. Having been involved in the construction of the Circle Line and more recently MCE, YNH’s modular strutting systems have made their mark as the preferred method for deep excavation support. Jurong rock cavern. This is an innovative initiative driven by JTC to increase underground oil storage capacity on Jurong Island. Jurong rock cavern will comprise an oil storage complex to be built at subterranean depths, and upon completion, will have 3m cubic metres of potential storage capacity. YNH is bidding for a contract that is worth around S$60m. Oman airport terminal building. YNH is bidding for a contract to provide structural steelwork for an airport terminal building in Oman, Middle East. This is a sizeable project that is worth some S$200m. Counting the Delhi International Airport and Bangkok’s Suvarnabhumi Airport as its previous projects, YNH has a strong case in its bid, we believe.
Order book. Taking into account the projects highlighted above, potential addition to YNH’s order book is estimated at S$670m-720m for FY10. Based on our estimates of S$435m of revenue for recognition in FY10, its order book at the end of 2010 could breach the S$600m mark. YNH is set to enjoy another busy year, with order book possibly breaking its record of S$540m at end-3Q09.
Margins may still come under pressure Margins improving, but may dip. Gross margins for the first three quarters of FY09 were 24-30%, from participation in higher-value-added projects and improved operating efficiencies. YNH was involved in bigger and more complex projects like the MBS IR and MCE which commanded premium fees. However, going into 2010, a slowing growth rate in the construction sector is likely to put pressure on project fees and hence margins. Competition heating up. 2007-09 also saw an influx of foreigner contractors competing for high-profile jobs like the MBS IR and Resorts World Sentosa integrated resort. According to industry sources, several of these contractors depressed fees in bids to win jobs and some eventually succeeded in their bids, at the expense of the local players. We believe that prominent projects in 2010 like the SSH, JRC and DTL will continue to attract bids from these foreign players. However, we believe that YNH will survive the competition better than its peers. Unlike most local contractors, this specialist contractor is a leader in its field, with an unrivalled capacity and track record to show. We believe its margins will only dip marginally, mitigated by its strong competitive position. Steel prices stabilising. Steel makes up about 30% of YNH’s cost of sales. During periods of stable steel prices, fluctuations in gross margins should be limited, but during volatile times, margins can swing. YNH typically locks in raw-material supplies with steel mills once a contract has been secured. The lead time between project tender and award is typically three months. During periods of steel-price volatility, YNH’s computation of its tender prices for contracts can differ materially from spot prices on the dates the contracts are awarded. Thus, when steel prices are dropping, YNH’s gross margins can improve as the actual cost of material is lower than the initial expectations during the project tender. This was the case in 9M09 when the bulk of revenue recognised was related to contracts awarded in FY08. Steel prices were volatile in 2008, but have been stabilising since 2H09. As always, YNH walks a tightrope balancing costs with competitive bids in the face of intensifying competition. Favourable project mix. Structural steelwork accounted for more than 70% of its revenue in FY07-08 while specialist civil engineering made up 23-30%. The former generally commands lower gross margins of 18-20% while the latter could generate gross margins of up to 30%. A major portion of YNH’s revenue which would be recognised in FY10 relates to specialist civil engineering projects in the pipeline. Management expects more such projects to dominate the company’s topline as sizeable MRT projects like the DTL come on stream in FY10. Given this mitigation, we expect gross margins to dip only slightly by 1-1.5% in FY10. Valuation and recommendation Maintain Outperform. YNH enjoyed a record order book this year and its FY09 net profit is expected to reach new heights. We believe FY10 will be equally exciting, if not better. We have upgraded our FY10-11 EPS estimates by 7-8% to factor in higher contract-win expectations. Accordingly, our target price has been upgraded from S$0.44 to S$0.47, still based on 10x CY11 P/E, at the lower end of its mid-cycle multiples. We expect stock catalysts from the announcement of significant contract wins. | 
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楼主
发表于 25-8-2009 12:49 PM
而且进展的速度也很慢。。。只能说放长期咯
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