Naim records better 1Q14 earnings on strong property profits

KUCHING: Naim Holdings Bhd’s (Naim) better-than-expected first quarter of 2014 (1Q14) overall earnings on the back of exceptionally strong property profits has led to most analysts believing that the group’s earnings prospect remains bright in the foreseeable future.

With Naim’s first quarter of financial year 2014 (1QFY14) core net profit coming in broadly within expectations, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) believes the group’s earnings prospect remains bright in the foreseeable future driven by Sarawak Corridor of Renewable Energy (SCORE).

“It is evident as it (Naim) managed to secure RM665 million worth of new contracts in FY13, higher than our RM500 million assumption.

“We expect the momentum to continue this year driven by Sarawak’s infrastructure spending within the SCORE project,” Kenanga Research projected, noting that currently Naim has about RM1 billion outstanding orderbook which will keep them busy until 2016-2017.

Similarly, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) has opined that Naim will have sustainable quarters ahead.

“Although property cooling measures and upcoming goods and services tax (GST) of 6 per cent may affect the demand and affordability for its property products, we believe demand could sustain on the back of massive industrial jobs in Lutong Town, the hub of Sarawak’s petroleum industry and shipbuilding,” it explained.

Apart from that, MIDF Research expects 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 thus also believes that these prospects will help to expand Naim’s depleting outstanding orderbook which is estimated at RM1.1 billion.

As for RHB Research Institute Sdn Bhd (RHB Research), despite considering Naim’s results as ‘below expectations’, the research still maintained ‘buy’ on the stock.

This is because it foresees that the prospects for the construction sector are strong, underpinned by an extended upcycle driven by the RM73 billion Klang Valley mass rapid transit (MRT) project which will keep players busy until 2021.

“For Naim, it will also be buoyed by the booming property markets in Miri and Bintulu, backed by massive oil & gas (O&G) and heavy industrial developments in Sarawak, construction projects under the SCORE, and high earnings growth of its 30.9 per cent-owned associate Dayang Enterprise Holdings Bhd (Dayang),” the research house added.

Despite the earnings downgrade whereby RHB Research had cut its FY14/15 forecasts by 12 per cent/15 per cent respectively to factor in Dayang’s earnings downgrade, the research house raised its fair value by one per cent to RM5.06 per share from RM4.99 per share as it rolled forward its valuation base year to FY15 from FY14.

As for Kenanga Research and MIDF Research, both maintained their earnings forecasts at this juncture while also reiterating their ‘outperform’ and ‘buy’ recommendations on Naim, respectively.

Kenanga Research had revised slightly higher our sum of parts-based (SOP-based) target price to RM4.27 per share from RM4.15 per share previously after it rolled-over Naim’s valuation benchmark to FY15.

SOURCE: Borneo Post Online (30 May 2014)