KUCHING: Naim Holdings Bhd (Naim) reported a core net loss of RM13.9 million for the first quarter of 2016 (1Q16) but its property sales exceeded expectations, analysts say.
In a filing to Bursa Malaysia, Naim reported that its profit before tax declined substantially to RM5.84 million in 1Q16 compared with RM21.3 million recorded in 1Q15.
It noted that despite the successful claims of loss and expense from a client and write back of certain liquidated ascertained damages (LAD) previously provided for completed projects of abut RM14.8 million contributing positively to its overall profit before tax, it attributed the decline mainly to its major associate, Dayang Enterprise Holdings Bhd (Dayang).
In a asepareport, the research arm of Kenanga Investment Bank Bhd (Kenanga Reserch) said the disappointing earnings was also due to higher-than-expected construction costs.
“1Q16 core net loss of RM13.9 million was down 188 per cent year-on-year (y-o-y) mainly due to their 29.1 per cent associate Dayang sinking into the red, recording a 176 per cent dip in contributions coupled with construction cost overruns which we believe were from their oil and gas (O&G) contracts.
“Core net loss narrowed RM5.1 million quarter-on-quarter (q-o-q) vis-à-vis a core net loss of RM19 million in 4Q15.
“This comes on the back of 66 per cent lower financing and stronger contributions from their property segment due to 43 per cent higher property revenue as a result of improved work progress translating to RM9.3 million of profits against previous loss of RM1.3 million,” it explained.
Despite the weak earnings, the research team pointed out that Naim’s property sales of RM51 million had exceeded expectations.
It noted that the sales were largely from the affordable segment. It also said that the outperformance in sales was achieved due to in-depth survey on the demand trend before launching.
“Currently, property unbilled sales stood at RM130 million providing a one-year visibility,” it added.
Nonetheless, Kenanga Research maintained its sales target in view of the challenging property outlook.
Despite having a healthy construction orderbook of RM1 billion, the research team remained cautious over Naim’s construction division as it has been constantly displaying losses/inconsistent earnings for the past two years.
“While we understand that management has been selectively bidding for jobs with comfortable margin buffers (gross profit margins of more than 20 per cent), we do not foresee their construction earnings to improve in the near term as these margin-enhanced jobs will likely to be felt from the financial year 2017 (FY17) onwards.
“Our FY16 estimate replenishment target stands at RM300 million and they have yet to secure any contract to-date,” Kenanga Research said.