Yongmao Holdings - Sales faltering

3Q09 net profit of Rmb4.1m (-87.5% yoy) was far below expectations, with 9M09 constituting only 45.9% of our annualised forecast of Rmb145.6m. Revenue slumped 30.2% yoy on weak sales in all markets except China domestic sales, attributable to weak demand as a result of the global economic crisis. Gross margin fell to 27.5% in 3Q09, from 30.6% in 2Q09 and 39.9% in 3Q08, due to a weaker product sales mix as well as higher prices of steel materials purchased. Despite an outstanding order book of Rmb174m, management's guidance is for a possible loss in 4Q09 as some orders may be delayed or cancelled. We cut our FY09-11 forecasts by 55-73% as we resume coverage following our internal compliance research blackout. We peg a CY09 P/BV of 0.8x to the stock, in line with Singapore peers, which translates to a new target price of S$0.20 (previously S$0.80 based on CY09 P/E of 8x). Downgrade to Neutral.

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