Naim bullish backed by strong property division

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KUCHING: Sarawakian player Naim Holdings Bhd (Naim) saw positive growth of 88 per cent for net profits based on its results for the financial year 2012 (FY12), a stark contrast from a 53 per cent drop seen in FY11.

According to the research wing of MIDF Amanah Investment Bank Bhd (MIDF Research), Naim posted net profit of RM87.7 million in FY12, a strong growth of 88 per cent year on year (y-o-y), as compared with RM46.9 million – a drop of 53 per cent y-o-y in FY11.

“The stronger performance was mainly boosted by Naim’s property division,” outlined MIDF Research.

“In fact, its property division’s contribution has surpassed construction division’s topline and bottomline in FY12.

“Despite slower quarterly construction revenue (a drop of 14 per cent quarter on quarter (q-o-q), Naim’s total fourth quarter (4Q) for FY12 revenue was still performing well (increase by 55 per cent y-o-y and increase of eight per cent q-o-q),” it added.

“This was mainly attributed to the stronger property division’s sales. Property revenue jumped 107 per cent y-o-y and 27 per cent q-o-q respectively to RM73.4 million, driven by higher revenue recognition following higher construction progress of property projects and increased property sales during the period.”

Despite weak sequential 4QFY12 net profit (a drop of 61 per cent q-o-q), MIDF Research affirmed that Naim’s 4QFY12 net profit grew strongly by 128 per cent y-o-y to RM11.4 million driven by higher margins from both construction and property segments.

“Construction and property earnings before interest and tax (EBIT) margins expanded to four per cent and 24 per cent in 4QFY12 from a minus two per cent and one per cent respectively in 4QFY11.”

Meanwhile, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) noted that Naim declared a second interim single-tier tax exempt dividend of five sen as expected.

“To date, Naim’s outstanding order book stands at circa RM1 billion, which would provide earnings visibility for the next four years as the Syarikat Perumahan Nasional Bhd affordable housing and Klang Valley Mass Rapid Transit station packages make up about 60 per cent of its outstanding order book.

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

MIDF Research concurred with this optimistic outlook for the group, noting that the group would stand to gain from more property launches.

“As for its construction division, Naim has yet to secure any project this year. However, its order book currently stands at more than RM1 billion. Naim also has submitted more than RM2 billion worth of construction tenders,” it noted.

“As for its property segment, management updated that it has on February 2013, launched its first commercial project in Bintulu and the market response was encouraging.”

To recap, Naim planned to build mixed development project known as New Bintulu Port City Centre (42 acres) with a total gross development value of RM2.3 billion.

This would contribute to Naim’s bottomline for at least the next three years, it said.

“While we are maintaining our forecasts, we reaffirm our buy recommendation with a slightly higher target price of RM3.22 per share (previously RM3.14) based on sum-of-parts (SOP) valuation,” MIDF Research said.

“The slightly higher target price reflects the latest market capitalisation of its listed associate, Dayang Enterprise Holdings Bhd, and Naim’s latest net debt position. At the current price level, Naim is trading at undemanding price earnings ratio of 5.2 times FY13 earnings.”

Meanwhile, Kenanga Research maintained an outperform recommendation as there was an attractive upside of 36 per cent to its target price of RM2.62 per share based on a SOP valuation.