Regional infrastructure play. We reiterate BUY on the company, which is shaping up to be a good proxy to benefit from the unprecedented infrastructure boom in this region. It is estimated that USD8t will be spent in Asia on infrastructure investment, to support the transition from export-based economies to domestic consumption. Yongnam has market leading positions in structural steel and strutting.

Within expectation. 1Q13 results were largely within expectation. Revenue grew 22% yoy, with the ongoing execution of its orderbook. Though profit was flat yoy at SGD11.5m, this was in comparison to the same quarter last year which benefited from exceptionally high gross margins of 29%. This is only a matter of normalizing margins, and we are encouraged by the sequential improvement in gross margins, from 20.5% to 24% this quarter.

Margins should pick-up slightly from here. This quarter, the structural steel segment, which generally has lower margins than strutting, accounted for a bigger proportion of revenue (55%). Margins should pick up slightly for the rest of the year on execution of strutting orderbook and the commencement of new contract wins. Notable ongoing projects for the rest of the year include Marina Coastal Expressway, Singapore Sports Hub and Hong Kong MTR.

Gunning for several contracts in 2H13. Ytd, there has been no order wins to replenish the orderbook, which now stands at SGD324m. However, management is optimistic of wrapping up several major project bids in the 2nd half. It should be noted that in Yongnam’s case, new contract wins commence immediately upon award by the main contractor and will contribute to revenue quickly.

Reiterate BUY. We reiterate BUY ahead of 2H13, which is shaping up to be an interesting period with major contract win catalysts in store. We adjust our FY13F forecast slightly downward by 2%, but we expect medium-term growth trajectory to remain unchanged. Our TP of SGD0.43 is pegged to 10X FY13F PER, with 81% of FY13 revenue backed by orderbook schedule.

Source: Maybank Kim Eng Research - 16 May 2013