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Strong Earnings Not The Only Reason Why You Should Buy Yongmao
Yongmao posted strong earnings results in its latest annual report.
Increasing business in emerging markets as urbanisation and economic development picks up pace.
Low valuation ratios give investors a margin of safety when investing in Yongmao
Full Year Annual Report
Tower Crane manufacturer Yongmao Holdings saw the three months ended March 31 record a net profit of Rmb 11 million ($2.2 million), almost double that of Rmb 5.7 million for the year-ago period. This was on the back of a 68.8 percent jump in revenue to Rmb 220.5 million.
Full year net profit grew by 130.4 percent to Rmb 51.3 million on the back of a 35.2 percent increase in revenue to Rmb 909.6 million. This was mainly attributable to an increase in revenue across all of the group’s geographical segments.
China continued to contribute strongly to Yongmao’s revenue, with Q4 turnover registering Rmb 135.8 million in sales. This was an increase in revenue by 61 percent. Yongmao’s other markets, such as the Middle East, the US and Europe and Asia (outside China) also posted strong results.
Sales in the Middle East and Asia (outside the PRC) also grew by 3993.4 percent and 38.9 percent respectively due to higher demand for our products and services especially in Israel/UAE, Malaysia and Hong Kong/Macau region. Sales in the USA & Europe also increased by 73.1 percent namely because of higher sales to the Russian market.
Overall, PRC sales still formed the bulk of the turnover of the Group, amounting to 61.6 percent of revenue in Q4 FY2014 as compared to 64.6 percent of revenue in Q4 FY2013.
Foray Into Myanmar And Other Emerging Markets
Chinese tower crane manufacturer Yongmao Holdings Limited and its subsidiaries have secured $3 million worth of contracts from Myanmar. These contract wins came on the heels of the Group’s maiden delivery of a tower crane to Myanmar in January 2014.
Under these new contracts, 10 units of the STT series of tower cranes have been sold to Erect Group in Singapore for its end user in Myanmar. Deliveries for the tower cranes will be made in between 2014 and 2015.
Yongmao’s management foresees that urbanisation and economic development in Myanmar will drive higher construction activities to support the development in Myanmar.
Eyeing the potential demand for infrastructure across Asia, Yongmao is looking to expand their foothold in the region to gain growth momentum in emerging markets such as Myanmar where urbanization continues to drive higher infrastructure needs.
Gross And Profit Margin
Average gross profit margin decreased to 27.6 percent in Q4 FY2014 from 28.1 percent in Q4 FY2013. The decrease was mainly due to higher provisions for stock obsolescence during the financial period and higher sales of the smaller sized lower margin topless and luffing series tower crane in both the PRC and the Asia (outside the PRC) markets. This was partly offset by higher rental and service income of tower cranes which generated higher profit margin.
Valuation
Yongmao is currently valued at $0.20 as of 30th May 2014. Its current NAV per share is $0.24 after converting from Rmb to SGD. The current share price is at a 20 percent discount from its actual NAV per share, which gives investors some margin of safety to invest in Yongmao.
This is further supported by the valuation ratios of Yongmao. The table above shows that Yongmao is relatively inexpensive in terms of its book value, the sales that it has locked in as well as its cash flow. The low valuation gives investors an even greater margin of safety.
Bullish
Both fundamental valuations as well as the business outlook of Yongmao give me reasons to go for a bullish call on Yongmao in the long run. However, that being said, investors might want to exercise their own prudence and monitor the cost of sales in markets that Yongmao is currently operating in to ensure that the increased cost of sales does not hurt Yongmao in the long run.
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