Yongnam: Looking forward to further weakness.

I have made an interesting observation with regards to Yongnam's share price.

Do you see it? Supports and resistance levels seem to be at 1.5c intervals. I am looking forward to further weakness so that I could buy more at 23.5c or even 22c per share.

Related post:
Yongnam: The ADR effect.

Yongnam: The ADR effect!

In October last year, Yongnam had a roadshow for overseas investors. In that roadshow, it was revealed that they were getting their shares traded as ADRs in the USA. This has happened and their ADRs commenced trading on 8 January 2013.

"This market platform will allow Yongnam shares to trade more easily on an international basis, enable the Company to diversify its shareholder base, encourage trading liquidity, and improve access to new capital markets." (Yongnam)

Mr. Market certainly likes the news!

If 26.5c should be taken out, then, I see 28c as the next resistance level to watch with 29c as a much stronger resistance which could be tested under very bullish circumstances.

Of course, we can only wonder if share price would go even higher tomorrow or the day after.

What are ADRs?

ADR stands for American depositary receipt and it is a stock that trades in the United States but represents a specified number of shares in a foreign corporation. ADRs are bought and sold on American markets just like regular stocks, and are issued/sponsored in the U.S. by a bank or brokerage.

ADRs were introduced as a result of the complexities involved in buying shares in foreign countries and the difficulties associated with trading at different prices and currency values. For this reason, U.S. banks simply purchase a bulk lot of shares from the company, bundle the shares into groups, and reissues them. (Source: Investopedia)

Related posts:
1. Yongnam: Worried about warrants?
2. A Christmas collection of charts.

A Christmas collection of charts.

Hello Kitty Christmas Tree!
Minneapolis - St. Paul International Airport

It is now the evening of Christmas and I have spent Christmas Eve and the whole of Christmas Day at home. I slept a lot and drank a lot of herbal tea. I ate mostly porridge. You guessed it. I am ill.

Here are some charts and my gut feel. Not much rigour but in the spirit of Christmas, I hope readers would be a bit more forgiving.

Target: 28c.

Target: 42c.

Target: $1.10

Target: $3.90

Target: 62.5c

Target: 83c

Take note that these are weekly charts and I am not expecting to make any fast money.

Ho, ho, ho! Merry Christmas!

Yongnam: EXPIRY OF WARRANTS - W121214.

Warrant Holders are reminded that in accordance with the terms and conditions of the Warrants, the rights to subscribe for new ordinary shares in the capital of the Company (the "New Shares") comprised in the Warrants will expire at 5:00 p.m. on Friday, 14 December 2012, after which time, any subscription rights comprised in the Warrants which have not been exercised will lapse and the Warrants will cease to be valid for any purpose whatsoever.

Read the full notice: here.

I wonder if anyone would actually bother to go through with this.

See my blog post of 14 July 2012:
Yongnam: Worried about warrants?

See photos of Marina Bay Sands which Yongnam had a big part in building. Photos were taken during my recent "staycation":
Singapore: Marina Bay Sands.

Yongnam: Worried about warrants?

Yongnam has been doing very well in recent years. Its management also shows a commitment in sharing the fruits of its achievements with shareholders as it paid steadily higher dividends in the last four years.

Yongnam's order book remains robust although its Q1 revenue and profit declined due to delays in starting up of a couple of projects. Is this why its share price has been languishing? Does Mr. Market expect Yongnam to underperform from this year on?

Well, to be fair, the broader market has been languishing too. It remains to be seen whether the 3,000 points pyschological resistance on the STI could be overcome.

With Yongnam, I am not so worried about its fundamentals. In fact, I expect the company to win more contracts as regional governments spend more on infrastructure projects. This will generate steady revenue for the company. With increasing contribution from its specialised civil engineering arm, profits are likely to improve at a steady clip.

What could be holding back its share price is its outstanding warrants. Warrants? Yes, the company had a 3 for 10 warrants issue in 2007. 3 for 10 is quite a big proportion. If all the warrants were exercised, we could see a 23% dilution in EPS. Then, its shares would look more expensive.

So, the question is whether Yongnam is able to make use of the funds productively to improve its EPS proportionally or more to negate any dilution concerns. This is something that no amount of foresight would be able to throw light on. So, a cautious Mr. Market is understandable.

Now, I would like to suggest that it is possible that holders of the warrants might not exercise the warrants. Reason? The exercise price is 25c a piece. With Yongnam's share price at 23.5c at the last closing, these holders could be better off allowing the warrants to expire and buying more shares of the company in the open market if they wanted to add to their long positions.

Also, if I remember correctly, the warrants were not free. They were sold at 3c a piece. So, the full price of a warrant turned share is actually 28c for the original warrant holders.

There are rather bullish 12 months target prices for Yongnam's shares by various research houses from 30c or so upwards. Unless Yongnam's share price is able go past 25c a piece, the exercise price of its warrants, I doubt holders would exercise their warrants and worries of dilution would evaporate, therefore.

The warrants expire 14 Dec 2012. That is only five months away. I guess I can only wait and see.

Related posts:
1. Yongnam: 3 new contracts worth $63.8m
2. Yongnam: FY2011 results.

Yongnam: 3 new contracts worth $63.8m.

Yongnam announced that it won 3 new contracts worth $63.8m. This will add to the company's current order book of $469m, making it $532.8m. These new wins are expected to have a positive effect on the company's numbers for 2012. Yongnam is a leader in its field and expectations are for more contract wins in the coming months.

Yongnam's net profit for 1Q 2012 came in lower compared to 1Q 2011 because of delays in projects starting up in 1Q 2012. 2011 was also a very strong year due to completion of higher margin projects. An improvement in 2H 2012 is expected, however. 

"Nonetheless, we continue to win notable projects both in Singapore and overseas. As at March 31, 2012, our order books stood at a healthy S$469 million. We remain cautiously optimistic that the Group will perform reasonably well in FY2012 in view of a strong pipeline of projects that we are bidding for and the two delayed projects ramping up in the second half of the year." Seow Soon Yong, CEO

Gross profit margin: 29.3%
Net gearing: Lower at 0.28x
NAV/share: 24.13c
EPS: 0.91c

If we were to annualise the weaker quarterly EPS of 0.91c, we will get 3.64c. This would give us a PER of 6.45x with a share price of 23.5c.

Read announcement: here.
See 1Q 2012 results: here.

Charts: China Minzhong, Wilmar, Yongnam, Sabana REIT, AIMS AMP Capital Industrial REIT.

I have a friend who told me that he wants to buy more of China Minzhong at 50c. Why 50c? He can't quite say. Anyway, at 50c, I would have lost almost half of my initial investment in the company...

What does the chart say? Momentum is definitely negative and the MACD is still in decline. What is encouraging is the reducing volume over the last three sessions although it remains elevated. Today, a white spinning top was formed. Could this be a reversal signal?

Well. the OBV is still in decline which suggests distribution is ongoing even as price weakened. The MFI though seems to be forming a higher low.

The MFI takes into consideration both volume and price and is often seen as a measurement of demand momentum. So, it is telling us that there is some demand coming back as the stock was savagely sold down. A rebound could be on the horizon and we could see gap closing at 68.5c in such an instance.

Wilmar's technicals have nothing encouraging for the bulls apart for the formation of a black hammer today.

This reversal signal would need confirmation in the next session but with the other technicals very bearish, it would be a nice surprise if a reversal does happen.

Yongnam has been sold down. It touched 22c today, a level not seen since August last year.

I have looked through Yongnam's numbers and they actually still look quite good. However, the lower highs on the MFI are obvious and buying momentum is absent. So, price could drift lower which could see it testing the low of 21.5c hit last August.

Although there has been some distribution going on as suggested by a mildly declining OBV, most shareholders are just holding on. Look at the volume. Look at where the OBV was last August and where is it now. Although price has reached the low levels of last August, OBV is at a much higher level.

To me, the price weakness of recent sessions is nothing alarming. It is not a result of rampant selling. It is just that without buyers share price could continue to drift lower.

I know quite a few people are looking to possibly adding more units of Sabana REIT to their portfolios.

MACD has crossed into negative territory. MFI, a measure of demand hit 50% and turned down. The OBV suggests that distribution is ongoing. The very high volume today formed a black hammer. The high volume suggests a heightened state of activity and the black hammer suggests that bears had the upperhand. Further weakness could see supports at 93c (100dMA) and possibly 90.5c (200dMA) tested.

AIMS AMP Capital Industrial REIT's chart is similar to Sabana REIT's but uglier.

The MACD has plunged headlong into negative territory while the MFI went into oversold territory. Very bearish. The OBV suggests that strong distribution activity is ongoing. Indeed, look at the trading volume spiking today. Immediate support is at $1.08 and if that goes, we could see $1.035 tested.

Yongnam: Immediate support at 25c.

Yongnam's share price has been rather stable. As a counter's share price sees a reduction in volatility, Bollinger Bands would start to narrow and "squeeze".  The beginning of such a squeeze is being observed here.

Daily chart.

A trading strategy using Bollinger Bands is to look out for an oncoming squeeze. This could be the precursor of an impending surge in price.

Couple this observation with how the rising 50dMA seems capable of acting as support in this case, there is a chance of Yongnam's share price going higher in time. The 50dMA also coincides with a trendline support which connects the lows of mid December 2011, February 2012 and March 2012.

Volume has dwindled while the OBV has flatlined. Not much activity either way. Who would blink first? The bulls or the bears?

Yongnam's fundamentals are strong and technically, there is support for its share price at 25c.

The counter should also be trading CD come end of the month. The proposed dividend is 1c per share.

However, if support at 25c should break, Yongnam's share price could fall to 24c, a longer term support.

Weekly chart.

Related post:
Yongnam: FY 2011 results.

Yongnam: FY 2011 results.

Went through Yongnam's FY2011 results as I munched on my lunch of wholemeal bread with margarine. I am very impressed with the results. For a company in a sector which is expected to suffer from the vicissitudes of cyclical effects with weak margins, it has done really well.

Year on year, revenue dipped 0.7% while gross profits improved 8.2%. Gross profit margin improved from 28.6% to 31.1%! This shows an increase in productivity. I always like using less resources to do more.

EPS improved 15.5% year on year from 4.38c to 5.06c. NAV improved from 18.92c to 23.25c. This is an increase of 22.9% as gearing reduced 38.8% from 0.49x to 0.30x. Earnings and assets are up while borrowings are down. Very nice.

To make the picture nicer, a dividend of 1c per share has been declared. This represents a pay out ratio of about 19.8%. At a share price of 25.5c, it translates to a dividend yield of 3.92%. 

The dividend paid out in the preceding year was 0.65c per share. Dividend per share has grown 53.8% year on year, therefore.

In FY2011, Yongnam saw greater contribution by its Specialist Civil Engineering business which commands a higher gross margin over its Structural Steelworks business. This allowed its gross profits to grow while revenue flatlined.

In FY2012, this trend is likely to continue. As of end December 2011, Specialist Civil Engineering already had a 61% share of its order book value of S$462m.

Not only does Yongnam have an enviable number of projects on hand, the high barrier to entry in the niche it has carved out for itself means that competition now and in the future is quite limited, allowing it to command better margins.

The increased spending by regional governments on infrastructure projects and Yongnam's strong ties with reputable international contractors will probably see Yongnam winning more contracts as the year progresses. This bodes well for the company, especially with expectations of a slow down in private sector demand.

See presentation slides: here.

See press release: here.

Related post:
Yongnam: Smart money is accumulating.

Yongnam: Smart money is accumulating.

OBV is used to detect distribution and accumulation activities. This, in itself, might not be very useful apart from providing material for a chit chat over tea. Looking at OBV together with price movement, however, could be rewarding.

A simple technical analysis suggests that smart money is accumulating shares of Yongnam.

Look at how the OBV has been gradually rising although its share price has been forming lower highs since early October 2010. An upward sloping OBV coupled with a weakening share price suggests that smart money is accumulating. Mind you, accumulation could go on for a long time as seen in this case.

However, there is support and buying on weakness could be rewarding as we could see prices going higher in time.

I have done some FA on Yongnam and its numbers have been improving over the years. Margins have been improving while gearing has been reducing.

Yongnam has carved a niche for itself in the construction industry and concentrates its efforts mainly in the infrastructure sector which continues to see major expenditure by regional governments.

What Yongnam does has a high barrier to entry and it is also probably the biggest in the game it plays. Yongnam seems to have an advantage and consistently gaining new contracts gives this claim credibility.

Visit Yongnam's website: here.