We maintain our BUY recommendation on Naim Holdings with a
lower fair value of RM2.88/share (previously: RM3.39/share) – based on an
unchanged 20% discount to its revised sum-of-parts (SOP) value.
The lower fair value encapsulates our earnings downgrade arising
from:- (i) more conservative new order book assumptions; (ii) higher interest
expense from its new Islamic bond facilities; and (iii) higher contributions/changes
in the market value of its oil & gas associate, Dayang Holdings.
Naim reported FY11 figures which were largely in line with expectations.
Stripping off an exceptional gain of ~RM10mil on the partial disposal of shares
in Dayang, core earnings dipped 62% YoY due to lower contributions from both
its property and construction divisions.
Property earnings fell by a sharp 80% YoY to RM14mil on the
back of:- (i) fewer property launches in 2010; (ii) some delays in receiving
approvals; and (iii) changes in the designs at some of its planned launches. As
a result, property EBIT margin shrunk to 12% from 41% a year earlier.
The construction division barely broke even in FY11 against
a RM42mil profit in FY10. This was mainly due to the substantial completion of
higher-margin projects secured in 2010, coupled with a lack of new order book wins
in 2011, when it only secured a solitary road contract in Fiji worth around
RM12mil.
Dayang was the bright spot in 2011, where contributions jumped
19% YoY to RM29mil. Dayang’s outstanding order book of oil & gas contracts
stands at RM1.4bil, providing job visibility at least until 2016. It accounted
for a significant 78% of Naim’s core earnings for FY11 against 25% in FY10.
We are projecting FY12F net profit at RM55mil (+51% YoY), mainly
on the back of a rebound in Naim’s property presales, which improved to over
RM180mil from RM140mil a year ago. For FY12F, we have assumed a higher amount
of RM240mil – including some maiden sales from the redevelopment of the oil
Bintulu airport site.
Naim is also tendering for construction projects worth over
RM2bil, including both public and private sector jobs in Sarawak. The group has
also been short-listed under the Bumi category for the Sg.Buloh-Kajang MRT
project.
Naim is trading at FY12F-14F PEs of 7x-9x, within the
midrange of its historical trend average of 8x.
Source: AmeSecurities
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