Excerpts from latest analyst reports....

Maybank KE highlights YONGNAM as beneficiary of healthy pipeline of public contracts

Analyst: Alison Fok

Seow Soon Yong, CEO of Yongnam Holdings, joined the company 34 years ago. Photo: Company

Yongnam is a structural steel contractor and specialist civil engineering solutions provider. It owns two steel fabrication facilities in Singapore and Malaysia with a capacity of 78,000 tonnes p.a..

It has an unbeatable track record of winning contracts in all MRT and expressway projects in Singapore.

YTD, Yongnam has won SGD137m worth of contracts, with a net order book of SGD496m, up 7.4% since end-2011, of which about 34% is expected to complete this year.

Margin contraction to be expected. Going forward, margins are expected to normalize without contribution from iconic projects such as Marina Bay Sands.

Compared to peers, Yongnam still commands more attractive gross and net margins of 26.3% and 15.5% as of 2Q12 as it deals with the downstream processing, compared to steel traders and suppliers. (Gross: 16.3% and net: 8.7%).

Yongnam's steel struts are used and re-used for tunneling projects. Photo: Company

Warrants expiring in December. Yongnam’s share price has lagged the sector due to 3-for-10 warrants issued at SGD0.03 in 2007.

It has an outstanding balance of 364.3m warrants which will expire on 14 Dec 2012, with a conversion price of SGD0.25.

Full conversion of the warrants will result in a 29% dilution to EPS.

Good times do last. With a solid track record on infrastructural projects, Yongnam will continue to thrive in the resilient public sector.

It now trades at FY11 PER of 4.6x and P/B of 1.0x compared with sector hist. P/E of 5.3x. Although it does not have a dividend policy, it has an average payout ratio of 16%.


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DMG & Partners maintains neutral rating and 30-cent target on CHINA ANIMAL HEALTHCARE

Analyst: Tan Han Meng

Chairman of China Animal Healthcare, Wang Yangang. NextInsight file photo

China Animal Healthcare (CAL SP, NEUTRAL, TP S$0.30) announced that it entered into a conditional Subscription Agreement with Themes Dragon International and SEB SICAV 2- SEB Listed Private Equity Fund to raise around S$48m to be primarily used to partly fund its possible de-listing from SGX.

In May12, the company signaled its intention to de-list from SGX at a possible offer price of S$0.30 while maintaining its HK listing status, and there has been no definite offer till date.

The subscription agreement include

a) ~53m subscription shares at issue price of S$0.30 and

b) ~106m warrants at exercise price of S$0.30, and is conditional upon the company obtaining approval i) from its shareholders at a general meeting for the possible de-listing exercise and ii) for the listing of new shares by 31 Mar13.

Although CAL has high cash generative characteristics that would warrant better valuations comparable to regional consumer counters (e.g. closer to upper end of its historical trading band of ~6x EV/EBITDA), uncertainty over its de-listing plan and a paltry dividend payout despite a hefty RMB821m cash pile would likely continue to weigh in the near-term.

Maintain NEUTRAL at TP of S$0.30, pegged to 3.6x blended FY12-13F EV/EBITDA.

Kevin Scully

Kevin Scully, executive chairman of NRA Capital, says:

China Animal Healthcare - delisting plans may finally be going ahead......The raising of this money from new investors was a key component in the China Animal delisting exercise. 

Now that the conditional subscription agreement has been announced, the transaction can proceed and hopefully be completed if shareholders agree to the exercise. 

What is interesting is that despite this announcement, the shares of China Animal remain at S$0.26, a 13.3% discount to the expected exit offer price. 

This is unusual as the arbitrage discount for most exit offers is about 5%.

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#3 Tiger 2012-09-30 08:55
I think it's ok now, China Animal is on the road to delisting from SG. No real reason to doubt the PE funds, they did not sign agreement for the fun of it, or as part of some unimaginable scam.

As for the exit price, it's 30 cents. That's locked in already for minorities who want to sell out.

Not so clear is the waiting period. How long more before it's 100% confirmed? That's why the arbitrage opportunity is there at 26-26.5 cents trading range. If you get it at 26.5 cents, the % upside is 13%. If have to wait 6 months for exit, the annualised return is 26%! Looks juicy!
#2 Kevin 2012-09-29 05:26
You think de 2 funds put in $48m for fun? Kevin is a smart analyst too.
#1 Jack Tan 2012-09-28 11:05
I think I rather believe MacGyver's words.

Kevin Scully reputation will really be badly hit if china animal cannot delist.

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