Our S$0.31 target price is based on 7x FY12E earnings estimates; this is roughly inline with Yongnam's historical (FY06-present) average. We believe mid-cycle valuations are comfortably justifiable by the group's
i) attractive structural growth story (well positioned to capitalize on large-scale government projects);
ii) good execution track record;
iii) market dominance, and iv) reduced downside risk arising from a greater degree of certainty with respect to industry outlook (state-funded long-term projects) and replacement value of its strutting assets.
Risks
The key downside risks to our investment thesis on Yongnam are: 1) Potentially dilutive impact from 365mn outstanding warrants (30% of share base; exercise price: S$0.25; expires Dec-2012); 2) Higher than expected increases in steel price; 3) Poorer-than expected Structural Steel contract wins; 4) Delays in commencement/ cancellation of key infrastructure projects (e.g. Thomson Line, Eastern Region Line, North-South Expressway); and 5) Execution risks. If any of these risk factors has a greater downside impact than we anticipate, the share price will likely have difficulty attaining our target price.
any ofyou guys realize that Koh Bros have been doing share buy back nearly daily? Altogether 12 million shares bought already. PE a bit high at 5, while Sim Lian is only at 1.8. But Koh management must be very confident of its future to do so much share buy back with its cash. It's the only construction company to do share buy back, at least recently. Any thoughts on Koh Bros?
Sun Plaza retail mall is half owned by Koh Bros which tried to sell it a few years ago. Didn't go through. My friend says Sun Plaza is not your cool place to go shopping & dining. The ambience is no standard. The place is looking run down and crying out for a new coat of paint. If Koh Bros can sell Sun Plaza, it will trigger a re-rating of the stock.
Joes, I have taken a quick look at Koh's financial statements. Everything seems to be in order, but, like all construction companies, it has a high level of debts. Also, it has a PE of more than 5, higher than other construction counters like Lian Beng, sim lian, chip eng seng, etc. one day, when i am free, i will look at all these constrcution counters' financial statements and make a comparison and see which is the best value for money. I think construction counters are ripe for the picking. Very interested in chip eng seng, sim lian and koh bros.
