KUCHING: Analysts are feeling more cautious on the outlook of Naim Holdings Bhd (Naim) following the group’s analyst briefing recently.
According to the research arm of TA Securities Holdings Bhd (TA Research), key takeaways from the meeting included that the construction division recorded a segmental loss of RM27.1 milliion in financial year 2014 (FY14), mainly dragged by the MRT projects, arising from margin markdown, additional costs for acceleration of works and provision for potential late ascertained damages.
“Recall, Naim was awarded the station works for S2 and S4 with a total contract amount of RM361.5 million,” it said.
TA Research noted that a total provision of RM33.4 million was made in the construction division for potential late ascertained damages and doubtful debts in FY14.
The research arm further noted that currently the group has an estimated outstanding order book of RM1.3 billion.
It added that year to date (YTD), the group has secured new construction contract worth about RM100 million for a housing project in Tanjung Manis, versus new contract wins in excess of RM200 million secured in FY14.
“The management is expecting RM300 million of construction order book replenishment for FY15, versus our previous assumptions of RM600 million.
“It carries a tender book of RM500 million to RM1 billion, including jobs in Peninsular Malaysia and Sarawak,” the research arm said.
As for the property segment, TA Research noted that the property sales in FY14 plunged 39.3 per cent to RM200.7 million from RM330.9 million in FY13, as the sentiment turned cautious after property cooling measures were imposed.
Going forward, the management expects the property sales in FY15 to slow down and decline further to a range of between RM100 million and RM150 million, versus the research arm’s previous estimate of RM200 million.
It noted that the property sales in FY15 is expected to be derived mainly from Naim’s developments in Bintulu and flagship township development in Miri.
“Currently it has an unbilled sales of RM177.7 million, versus a property revenue of RM247.2 million in FY14,” the research arm said.
In addition, TA Research noted that the response to Naim’s condo developments was rather lukewarm.
According to the research arm, the Sapphire Condo at Kuching Paragon with an estimated gross development value (GDV) of RM155 million, at a selling price of RM568 to RM803 per square foot (psf), recorded a low take-up rate of 15 per cent since the development was launched in the first quarter of 2014 (1Q14).
Meanwhile, TA Research noted that the Peak Condo in Bintulu Paragon, with an estimated GDV of RM154 million, selling at RM1,194 to RM1,522 psf, registered a take-up rate of 36 per cent since it was launched in 2Q14.
“The group has budgeted RM200 million for land-banking exercise, most likely to be financed via borrowings.
“It is targeting lands not only in Sarawak but also in Klang Valley as well,” the research arm added.
In line with the management’s guidance, TA Research slashed its FY15 construction order book replenishment assumptions from RM600 million to RM300 million, and cut its property sales assumptions from RM200 million to RM150 million.
“As a result, we reduce the earnings forecasts for FY15 to FY17 by 11.1 per cent to 15 per cent,” it said.
With the revision in earnings forecasts, the research arm cut Naim’s target price from RM3.26 per share to RM2.96 per share, based on unchanged eight-fold current year 2015 (CY15) construction earnings, six-fold CY15 property earnings and a 20 per cent holding company discount to 11-fold CY15 oil and gas (O&G) earnings.
All in, TA Research reiterated its ‘sell’ call on Naim as it expects the outlook for the group to remain less sanguine in near term.