KUCHING: Naim Holdings Bhd’s (Naim) construction division is expected to drive the company’s growth forward, despite the slowdown in Sarawak’s property sector seen in the first half of 2014 (1H14).
Analysts believe that Naim is a good proxy to constructions projects in Sarawak’s oil and gas (O&G) sector and the Sarawak Corridor of Renewable Energy (SCORE) blueprint. Demand is also likely to be sustained by industrial jobs in Lutong Town, Miri and SCORE area.
RHB Research Institute Sdn Bhd (RHB Research) in a report said Naim remains a good proxy to the buoyant construction and property markets in Sarawak, backed by massive investments in the O&G and heavy industrial sectors under the SCORE blueprint.
“It also piggybacks on the high growth potential of Dayang Enterprise Holdings Bhd (Dayang) by virtue of its 30.9 per cent stake in the hook-up and commissioning specialist in the O&G industry.”
Although property cooling measures and upcoming goods and services tax (GST) of six per cent may slow down the demand and are likely raise property cost, MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) believes demand is likely to sustain on the back of massive industrial jobs in Lutong Town, Miri and SCORE projects.
“Apart from that, we remain optimistic that its construction segment will continue to be a key beneficiary of robust SCORE projects and five potential hydroelectric dams (Baram, Balleh, Pelagus, Limbang and Lawas) to be built in Sarawak.”
It added, “A number of sizeable construction tenders also have been submitted which will help to expand its depleting outstanding orderbook of an estimated RM1.1 billion.”
To note, Naim had announced that its net profit for the second quarter of 2014 (2Q14) was at RM28.76 million, an increase of 217 per cent year-on-year (y-o-y), while its 1H14 earnings was at RM124.58 million, a 148 per cent increase y-o-y.
RHB Research said Naim’s outstanding construction orderbook currently stands at RM1.1 billion, which should sustain its construction profits over the next 18 months.
“Sarawak’s property sector is not spared from the slowdown following various cooling measures introduced by the government.
“Naim only managed to record RM98 million property sales in 1HFY14 (vis-à-vis RM331 million for the whole of FY13),” the research team said, noting that Naim’s unbilled sales currently stands at RM220 million.
MIDF Research further noted, Naim’s stronger performance was due to improvement in the progress of its ongoing projects especially, the construction of elevated stations for MRT Package S2 and S4 as well as other projects in Sarawak State which helped it to return to black in 1HFY14 from a loss of RM9.2 million in 1HFY13.
While Naim expects sales from its mature townships in Miri to remain stable, it is cautious about the demand for its high-rise residential units and high-end commercial units in Kuching and Bintulu.
All in, MIDF Research reaffirmed its ‘buy’ recommendation on Naim with a higher target price of RM4.80 per share.
RHB Research maintained its ‘buy’ call on the stock, and kept its fair value at RM5.06 per share based on 10-folds FY15 earnings per share EPS, in line with the research team’s one-year forward target price earnings for the construction sector of 10 to 16-folds.