2Q13 results within expectations. Results were mostly within expectation, including a one-off SGD5.1m provision for the Alpine Bau MRT project, which hit bottom line. Excluding this item, net profit would be up 13% yoy and 19% qoq. Despite ongoing speculation about Myanmar contract wins, we are positive on the strength of its core business and see Yongnam as a key beneficiary of an unprecedented infrastructure boom in the region. Recent share price weakness represents an opportunity to accumulate, maintain BUY.

Higher revenue, lower margins. Revenue for the quarter was up 48% yoy, on higher recognition on ongoing projects, such as Singapore Sports Hub, National Art Gallery, Suntec City, and a Belt Conveyor Structure in Malaysia. However, gross margins were lower at 19% partly due to a higher percentage of structural steelwork (61%) which has lower margins. Going forward, we expect this to improve from better-priced new contracts as well as more revenue from strutting.

Expecting major project wins over next few months. Current orderbook stands at just SGD266m, of which 57% is for higher-margin strutting work. This is a very thin orderbook by Yongnam’s standard. Management is in the midst of renegotiation for several major contracts, we believe centering on pricing. Around SGD60m of our FY13F revenue assumes new contract win recognition.

Myanmar contracts yet to be announced. There were no further updates on Myanmar, with both the Yangon and Hanthawaddy airports yet to be officially awarded, despite ongoing market speculation. Management remains optimistic they are front-runners for both airports. Current share price in our opinion, does not price in a win at this moment.

Maintain BUY. We treat the SGD5.1m provision as a one-off, as believe there is a possibility of write-back later on. Excluding that, we trim our FY13-FY15F earnings 2-3% mainly on lower margin assumptions. Our SOTP TP is SGD0.465 (assuming 50% chance of winning Yangon). Maintain BUY.

Source: Maybank Kim Eng Research - 6 Aug 2013