Naim Holdings - 1H12 results broadly in line

Period    2Q12/1H12

Actual vs.  Expectations

 1H12 core net profit of RM41.5m was broadly within our and the street’s estimates, making up 60% and 55% of our FY12E core net profit and the consensus respectively. Naim also recognised a RM2.8m-gain from the disposal of a 2% stake in DEHB. Its current shareholding in DEHB stands at 33.6%. 

Dividends   A single tier dividend of 3 sen has been declared as expected.

Key Results Highlights

 YoY, the 1H12 core net profit increased significantly by 42% to RM44.5m (from RM31.4m) on the back of improvements in its property sales of RM97.3m (+71%) coupled with the improved operating margin in the construction division by 7.7ppt to 11.6% (from 3.9%). The higher margin in the construction division was mainly due to higher profits recognised for the completed projects in 2Q12. Naim has also recognised a RM2.8m-gain from the partial disposal (2%) of its stake in DEHB.  

 QoQ, the core net profit improved by 76%, predominantly due to better property sales in that segment, which improved by 31% coupled with an enhanced operating margin from 15% to 26%. Its associate, Dayang, has also significantly lifted up Naim’s bottom line as the associate contribution increased by 24% contributing 37% of Naim’s 2Q12 core net profit. 

Outlook   To date, Naim’s outstanding order book currently stands at RM1.1b, which will provide earnings visibility for the next four years.

 The next re-rating catalyst for Naim will be additional contracts secured within the remaining months of FY12. Thus far, Naim has managed to secure RM500m worth of new contracts in FY12.

Change to Forecasts

 No changes to our FY12-13E forecasts.

Rating  MAINTAIN OUTPERFORM

 Maintain our OUTPERFORM recommendation as there is an attractive upside of 57% to our TP of RM2.94.

Valuation    Maintain our Target Price of RM2.94 based on SOP valuation.

Risks   Escalating building material prices.

Source: Kenanga