Naim to profit even more with SCORE

Posted on August 27, 2011, Saturday

KUCHING: Naim Holdings Bhd (Naim) is expected to fare well as one of the beneficiaries of the Sarawak Corridor of Renewable Energy (SCORE) despite having registered lacklustre results for the first half of the year.

CONTINUING CONTRACT FLOW: Photo shows the completed Balingan bridge which is part of Naim’s ongoing road projects. AmResearch says the group’s construction margins should improve in the second half.

Naim’s net profit of RM31 million for the first half of 2011 (1H11) came in at 40 per cent of consensus estimates. The lower than expected results were mainly due to slower property sales which was down 42 per cent year-on-year(y-o-y) and lower recognition of construction revenue (down eight per cent y-o-y).
The research arm of Kenanga Investment Bank Bhd (Kenanga Research) trimmed down its estimates by 15 per cent and 19 per cent for financial year 2011 (FY11) and FY12, respectively, as it assumed slower property sales for the group.
Nonetheless, Kenanga Research commented, “We are still positive on Naim as one of the beneficiaries in SCORE project roll out especially for its construction arm while supported by its strong recurring income from its oil and gas division.”
Currently, the group’s orderbook stood at about RM900 million for the next two years. The construction of the Sabah Oil and Gas Terminal (SOGT) shared a big chunk of its orderbook.
Kenanga Research expected Naim to secure at least RM300 million of new construction contracts in the term, noting, “We like Naim for its exposure in SCORE development and its niche property business in tapping the increase in population from SCORE development project roll-out.”
AmResearch Sdn Bhd (AmResearch) noted that the downtrend was offset by a 45 per cent y-o-y jump in oil and gas associate earnings in Dayang Enterprise Holdings Bhd.
The research house stated that construction margins, while down for the first half (1H), should improve in the 2H along with a ramp-up of contributions from the SOGT which was now about five per cent completed.
AmResearch opined, “We are also encouraged that property pre-sales reached close to RM100 million in the 1H of financial year 2011(FY11) or about 70 per cent of FY10 sales of RM144 million.
Naim was bidding for RM1 billion worth of contracts including a road project near Balingan, the new Mukah airport as well as housing works (about 200 units) at Samalaju.
In addition, the group had submitted pre-qualification documents for both Asia Mineral Resources Ltd’s and OM Holding Sdn Bhd’s upcoming manganese facilities at Samalaju.
AmResearch also pointed out that Naim was also eyeing opportunities for an upcoming acacia pulp and paper plant in Mukah.
Furthermore, net asset value growth would be underpinned by three prolific land deals in the pipeline, namely 33 acres of prime land in Batu Lintang, a stake in the New Samalaju Township and an integrated development within the 36-acre plot at the old Bintulu airport site.
Based on a price earnings ratio of 10 times for FY12 forecasted, Kenanga Research derived a target price of RM3.60 per share.
Using a sum-of-parts derivation method, AmResearch pegged Naim’s fair value at RM3.72 per share on, representing a 20 per cent discount of the last traded price.