Unsuccessful in both Myanmar airport tenders. Having earlier estimated a 50% chance for Yongnam’s consortium in both the Hanthawaddy International Aiport (HIA) and Yangon International Airport (YIA) extension, we are disappointed at the outcome. However, given that 1) material impact in the short-medium term is small and 2) there is still a remote possibility of getting back into the projects, we think share price has been over-penalized.

Very close calls. The Myanmar government will now enter into direct negotiations with consortiums led by Incheon International Airport for HIA and Pioneer Aerodrome Services for YIA. We believe the final decisions were very close calls, as evident by the naming of Yongnam’s consortium as back-up tenderers for both projects. We believe the final decisions were swayed more by overall package terms rather than technical expertise.

Share price over-penalized. Share price has corrected more than 20% in the past three weeks. Materially, we estimate YIA would have added around SGD9m of profit to FY14, while HIA would have only contributed from FY16 onwards. This also excludes execution risks given the brand-new market and need for equity investment on Yongnam’s part. This development also does not change our core investment thesis that the company is well-placed to benefit from the infrastructure build-up in Asia.

Other contract catalysts. The company is in close negotiations for several more sizeable contracts, which will be announced within the next few months. Potential work to commence in 2H13 includes MS Development, Hong Kong MTR extension and Thomson Circle line. These could change the orderbook profile significantly. We are now expecting around SGD300m in order wins for the rest of the year.

Maintain BUY. We scale back on our TP to account for 1) SGD4.5cent/ share we originally factored in for a 50% chance of winning YIA 2) Using 9x FY14F (one-standard deviation above 5-year average mean PER). Our new TP is now SGD0.40. Trading at 1x P/B and 3x EV/EBITDA, we believe the stock is undervalued and see this development as an opportunity rather than crisis. Maintain BUY.

Source: Maybank Kim Eng Research - 14 Aug 2013