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.

Sheng Siong: A good investment for income?

Last year in August, Sheng Siong's IPO created a bit of a buzz. The company promised a pay out ratio of 90% in FY 2011 and FY 2012 to woo investors and offered shares to the public at 33c a piece. It was 1.3x oversubscribed.

For FY2011, net profit fell 36.1% while revenue fell 8%. Net profit margin declined to 4.7% in FY2011 from 6.8% in FY2010. This is although gross profit margin improved somewhat to 22.1% compared to 21.8% in the previous year. Frankly, I find its net profit margin to be rather unattractive and it actually looks worse than some local construction companies'.

However, delivering on its promise of a 90% pay out ratio, the company has proposed a dividend of 1.77c per share for FY2011. At its last traded price of 48c a share, it translates to a dividend yield of about 3.69%. For those who got their shares at IPO, they would have a dividend yield of 5.36% on cost.

Many invested in Sheng Siong thinking of its business as recession proof and that it is a defensive stock to own. However, its numbers suggest that it does not have much of an economic moat and is not really defensive per se. In fact, the leaner margins have been attributed to keen competition from rival supermarket chains.

Debt free and with more cash on hand, let us see if the company would be able to deliver more value to shareholders in the new financial year. However, for any would be investor, it pays to note that after FY2012, there is no guarantee that Sheng Siong would continue with its 90% pay out ratio.

If the payout ratio were to be reduced to 50% or even 30%, what would the dividend per share amount to then? Would its earnings per share grow fast enough to compensate for the lower pay out ratio in order to continue delivering a similar quantum of dividend per share?

Sheng Siong might be a good place for grocery shopping but is it a good investment for income?

The jury is still out on this one.

See slides presentation: here.
See results announcement: here.