Yongmao Holdings - Holding ground

Yongmao's 4Q09 net loss of Rmb20m was far below our expectation of a Rmb2.5m loss on weak sales and product mix and high raw material costs. FY09 net profit of Rmb47m fell short of our forecast by 27%. FY09 revenue slipped 8.9% yoy. Gross margin fell to 8.5% in 4Q09 from 27.5% in 3Q09 and 36% in 4Q08. Yongmao will be focusing on domestic market sales as well as its towercrane rental JV with Tat Hong in FY10. We cut our FY10-11 forecasts by 24-26% to reflect the challenging sales outlook. However, we now peg a CY10 P/E of 8x (0.8x CY09 P/BV previously) in line with sector mid-cycle multiples, which translates to a new target price of S$0.23 (from S$0.20). Yongmao is already trading at 7.7x CY10 P/E, in line with peers. Maintain Neutral.

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