Yongnam Update.

This report was compiled by OCBC Research today (see full report here):

A momentous two years ahead

The great Singapore re-making.

The key catalyst that will propel Yongnam Holdings Ltd (Yongnam) through the next few years is Singapore’s re-making into a world-class urban city. The government plans to spend about S$50bn just on road and rail infrastructure development over the next 10-12 years.

Yongnam has already enjoyed significant orders stemming from this revamp – it recently completed work on a recreation and commercial complex for the upcoming Formula One event. The integrated resorts (IRs) are the crown jewels of the new Singapore: more than S$5b is going into developing the Marina Bay Sands IR alone. Once again, Yongnam is involved and has already secured two sub-contracts for work on the IR.

Breaking new frontiers with New Delhi project.

Yongnam has been busy beyond Singapore’s borders as well. Last month, it secured a S$70m structural steelwork sub-contract for the highly anticipated Terminal 3 at New Delhi’s Indira Gandhi International Airport. This represents Yongnam’s first major project in India and should serve as a showcase in yet another lucrative construction market.

Yongnam also continues to focus on building its business in the Middle East, which is witnessing its own construction boom. In FY07, business from the Middle East contributed to 37.6% of its revenue.

Solid order book and pipeline for FY08-09.

Yongnam kicked off the year with a strong order book amounting to S$232m, almost 33% higher than its FY07 revenue. We understand that these orders will be recognized over FY08-09. Apart from the recently completed F1 complex and the New Delhi airport project, the current order book includes work at the Marina Bay Sands, the ION Orchard, the Circle Line and the Dubai Metro Rail.

On top of this, Yongnam expects a project pipeline worth S$1b from select infrastructural developments to kick off over the next two years. A 30% hit rate would more than double Yongnam’s current order book.

Doubling capacity to fully exploit growth prospects.

Yongnam’s facilities for its structural steelworks business in Singapore and Malaysia make it five times larger than its nearest local competitor. Its average utilisation has been over 90%. Yongnam is now building its second fabrication factory in Malaysia, which is expected to be ready by end June.

The new plant should double Yongnam’s capacity and allow it to fully exploit what is a momentous time in its industry. We do not have a rating on Yongnam.