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Yongnam Slips Into The Red

YongNamLogoYongnam Holdings Limited. (SGX: Y02) released third-quarter results on Monday. Despite reporting a robust 34% growth in revenue, the bottom-line plunged into the red with a S$3.4 million loss.

Founded in 1971, Yongnam is a well-established structural steel contractor and specialist civil engineering solutions provider with over 40 years experience in steel fabrication under its belt. Its Structural Steelworks Division provides engineering coordination, detailing and full-service fabrication & erection of structural steel with the operations in Singapore, Malaysia, Thailand, and Hong Kong.

Structural steelwork involves the design, fabrication, supply and erection of steel structural frames for long span aircraft hangars, high rise buildings, commercial and industrial buildings, as well as infrastructure related developments. Other players in the same industry include TTJ Holdings Limited (SGX: K1Q) and BBR Holdings (SGX: KJ5). Both companies are construction and engineering groups which incorporate the concept of “design, supply and installation”.

Basic Figures

Yongnam reported a healthy 34% increase in revenue from S$71.7 million to S$95.9 million for the quarter compared to the previous year. The higher revenue was largely due to contributions from on-going projects such as the Singapore Sports Hub, National Art Gallery and Market Street which increased by 91.9% to $56.8 m.

However, gross profit was down by 55.2% to S$8.18m due to cost overruns of $10.8 million for three on-going Structural Steelwork projects and the lower revenue mix from higher margin Specialist Civil Engineering projects (41% this quarter compared to 59% a year ago).

In addition, a non-recurring loss of $8.1 million incurred on disposal of fixed assets resulted in a steep hike in general and administrative expenses from S$5.97 million to S$14.0 million. The loss on disposal of fixed assets is mainly due to one-off disposal of pipe piles utilized in the Specialist Civil Engineering businesses.

On a brighter note, Yongnam’s net gearing remained at a healthy level of 0.48 times as at 30 September 2013, notwithstanding a marginal increase from 0.33 times as at 31 December 2012. Its cash and cash equivalents also increased from S$13.51 million to S$16.33 in the corresponding quarter last year, albeit due to lower capital expenditure and higher borrowings.

Outlook

Seow Soon Yong, Chief Executive Officer of Yongnam, said: “While the Group’s topline showed a healthy year-on-year growth, cost overruns pared down gross margin which was further eroded by the non-recurring loss on disposal of fixed assets. Nonetheless, the Group’s financial fundamentals remain sound, with a healthy cash position and plenty of headroom for growth and expansion.

He added: “Outlook for infrastructural developments and commercial projects in Singapore and the region remains positive with strong demand projected for 2014 and beyond, anchored mainly by public sector projects. The Group continues to actively pursue approximately S$1.2 billion worth of new infrastructural and commercial projects in Singapore, Hong Kong, Indonesia and the Middle East, of which 16%, if secured, is expected to commence in the last quarter of FY2013 and the balance in FY2014.

Valuation

Shares of Yongnam Holdings closed flat at S$0.245 on Friday before the earnings report. At that price, the shares are valued at 11.95 times earnings and carry a dividend yield of 4.08%. Its Net Assets Value (NAV) per share currently stands at S$0.2585 cents, up a smidgen from S$0.25 on 31 December 2012.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.