Naim still a top pick despite MoU loss

KUCHING: The latest announcement from Naim Holdings Bhd (Naim) regarding the termination of its proposed joint venture (JV) with a Libyan partner will not affect its share price too much.

The homegrown construction group stated on Bursa Malaysia that after much review and further negotiations with the Tripoli-based Al-Waatasemu Charity Foundation (Al-Waatasemu), it informed that the memorandum of understanding (MoU) – entered on July 16 this year – had not been extended.

“While the termination of the MoU had been expected, the impact should not be too negative, since Naim’s share price did not really run in the first place when the agreement was announced,” said OSK Research Sdn Bhd’s (OSK Research) analyst Jeremy Goh.

“To begin with, I do not think many were expecting the Libyan project deal to go through. To us, the cancellation is no big deal. We still retain Naim as our top pick for Sarawak’s infrastructure theme.”

OSK Research pegged a target price of RM5.09 per share on Naim, with a warranted ‘buy’ recommendation.

Furthermore, Goh – whose field specialty is that of the construction sector – added that Naim had other MoUs yet to materialise.

One of which, also in Libya, was the ‘Solar Oasis’ project – the group’s proposed collaboration with the local government relating to a business and scientific research centre for the purpose of solar energy research in the Middle East nation.

The group’s participation in the project would be focused on property and estate management – Naim’s core expertise – wherein the cost of the project would not be less than US$1 billion (approximately RM3.1 billion).

“The market knows this. As such, the termination should not be an issue since it was not factored into consensus. We have not done any revision or changes to the group’s target price,” the analyst highlighted.

He further underscored Naim’s ability to secure the RM2.44-billion Sabah Oil and Gas Terminal (SOGT) contract in Kimanis from Petronas Carigali – via its JV with South Korean-based Samsung Engineering Co (Samsung Engineering) earlier this month.

“The SOGT is a huge positive for Naim, as no one expected them to win,” added Goh.
“Again, the group will get to demonstrate its repertoire by way of its focus on the SOGT’s support infrastructure like roads, bridges, earthworks and site offices.”

Meanwhile, ECM Libra Investment Bank’s (ECM Libra) senior analyst Bernard Ching cautioned local firms to be selective and prudent when it came to MoUs with foreign partners.

“While we do not cover Naim, we do see the MoU termination as a minor ‘setback’ for a large group such as Naim. To us, it is better for Malaysian companies to be cautious in pursuing overseas expansion,” he opined.

On his overall view on the sector, Ching opined that the construction market appeared to be somewhat ‘neutralised’.

“Valuation of construction stocks are no longer compelling as the expected award of mega projects in the coming months have largely been factored into existing earnings model. We remain ‘neutral’ on the sector with new job flows remaining patchy, while the proposed mega projects are still under evaluation.”

On the other hand, he tagged a favourable outlook on the sector in Sarawak.
“Much newsflow has continued to come from East Malaysia, especially from Sarawak. As part of the Sarawak Corridor of Renewable Energy (SCORE) initiative, the state has requested for RM800 million worth of federal funding for the construction of a deep sea port, as well as to upgrade the airport at Tanjung Manis.

“The deep sea port, which is expected to be sited near to the Rajang river mouth, has been allocated RM300 million while upgrading of the airport is expected to cost RM500 million. The contract for these developments will definitely bring much attention from local construction players, for which construction for the projects is targeted to begin by early 2011,” explained Ching.