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Thursday, May 29, 2014

Naim Holdings - 1Q14 Core Net Profit Grows 10% Y-o-y

Source: http://klse.i3investor.com/blogs/rhb/53202.jsp

Naim’s 1Q14 results missed expectations. We cut our FY14/15 forecasts by  12%/15%  respectively  after  factoring  in  lower  associate  earnings. However, we maintain our BUY call and raise our FV by 1% to MYR5.06 as we roll forward our valuation base year to FY15. We still like Naim as it is a proxy to the booming property markets in Miri/Bintulu, backed by massive oil & gas and heavy industrial developments in Sarawak.
  • Exceptionally strong property profits  in  1Q14.  Naim’s 1Q14  core  net profit of MYR33.2m (excluding MYR62.2m  exceptional gain largely  from the  disposal  of  shares  of  30.9%-owned  associate  Dayang  (DEHB  MK, BUY,  FV:  MYR4.80))  came  in  at  27%/24%  of  our  full-year forecast/consensus  estimates  respectively.  However,  we  consider  the results  below  expectations  as:  i)  exceptionally  strong  property  profit  in 1Q14  was driven by an abnormally high property  profit before tax (PBT)margin  of  38%  (as  write-back  of  “cost  savings  from  substantially completed projects”) will not be sustainable, and ii) weak 1Q14 results of Dayang (see  Dayang Enterprise Holdings -  Expect Inflection  Point From 2H14).
  • Forecasts.  We cut our FY14/15  forecasts  by  12%/15%  respectively  to factor in Dayang’s earnings downgrade.
  • Risks.  These  include:  i)  new  construction  contracts  secured  in  FY14falling  short  of  our  assumption  of  MYR500m,  ii)  an  escalation  in  input costs, and iii) weak demand for Naim’s property launches.
  • Maintain  BUY.  The  prospects  for  the  construction  sector  are  strong, underpinned  by  an  extended  upcycle  driven  by  the  MYR73bn  Klang Valley mass rapid transit (MRT) project which will keep players busy until 2021.  For  Naim,  it  will  also  be  buoyed  by:  i)  the  booming  property markets  in  Miri  and  Bintulu,  backed  by  massive  oil  &  gas  (O&G)  and heavy industrial developments in Sarawak, ii) construction projects underthe  Sarawak  Corridor  of  Renewable  Enegy  (SCORE),  and  iii)  high earnings  growth  of  its  30.9%-owned  associate  Dayang.  Despite  the earnings downgrade, our FV is raised by 1% to MYR5.06 from MYR4.99as  we  roll  forward  our  valuation  base  year  to  FY15  from  FY14.  Our revised FV is  based on 10x revised  FY15  EPS, in line with our 1-year forward target P/E for the construction sector of 10-16x.

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