Naim Holdings - FY12 below expectations

Period  4QFY12/12MFY12

Actual vs. Expectations  Naim’s FY12 core earnings of RM84.9m came in slightly below ours and the street’s estimates, making up 89% of ours and the consensus FY12E core net profit of RM95.9m each respectively due to a lower than expected joint-venture contribution and a higher minority interest share.

Dividends  A second interim single-tier tax exempt dividend of 5.0 sen has been declared as expected.

Key Results Highlights  QoQ, Naim’s 4Q12 core earnings were down 61% to RM11.3m as the net margin was compressed by 14ppt to 8.0% despite a revenue growth of 8.0%. The decline in the net margin was mainly due to the weak performance by its construction unit and a higher effective tax rate. The construction profit was down by 67% to RM2.2m while its effective tax rate increased 35ppt from 2% to 37%.

 YoY, the 4Q12 core earnings grew tremendously by 115% to RM11.3m underpinned by strong property earnings. The property segment registered an operating profit of RM17.4m (RM0.2m, 4Q11) on the back of the improved sales of 122%.

 For the full year, the FY12 core earnings improved 84% to RM84.9m, which were attributable to the better property sales and an improvement in the margins. Property sales increased 99% from RM114m to 228.5m while there was also a 7.1ppt improvement in the property operating margin from 12.3% to 19.4%.

Outlook  To date, Naim’s outstanding order book stands at c.RM1.0b, which would provide earnings visibility for the next four years as SPNB affordable housing and KVMRT station packages makes up about 60% of its outstanding order book.

Change to Forecasts  No changes to our FY13 forecast as we believe that its earnings would be underpinned by its strong property sales in Sarawak.

Rating   MAINTAIN OUTPERFORM

 Maintaining our OUTPERFORM recommendation as there is an attractive upside of 36% to our TP of RM2.62.

Valuation  We are maintaining our Target Price of RM2.62, which is based on a SOP valuation.

Risks  Delays in existing construction projects.

 Escalating building material prices.

Source: Kenanga