Naim Holdings Berhad

•  Naim’s  1Q10 earnings were  below ours and consensus expectation. Nevertheless, we expect better quarters ahead with continuous contribution from its property division  and recovery from its construction division. 

•  We maintain our forecast earnings for FY10 and FY11, backed  by  an  outstanding orderbook  of RM2.7b,  notably the  Kuching Flood Mitigation project package 1, road works and  other infrastructure  projects  as  well  as  its  property projects.

•  Our BUY call is maintained with a 12-month target price of RM3.90/share based on sum-ofparts valuation relative to PER approach.

Higher sales contribution.  Naim recorded a turnover of RM123.4m,  representing an upside of 30%yoy as its property sales jumped significantly as compared to that last  year. Its construction division also recorded  a higher turnover of 13%yoy.

However,  its 1Q10 net profit fell by10%yoy, dragged by the construction division with property being the major contributor. Meanwhile, its associate, Dayang showed positive earnings growth. 

RM3.6b contracts in hand. Naim has a  total orderbook of RM3.6b with an outstanding orderbook of RM2.7b.

The present orderbook would be able to sustain earnings growth for the next 3-4 years. Management highlighted that they are bidding a few local projects which  include  the  resettlement  in Bengoh Dam plus other  infrastructure projects  to support the development of SCORE. Amongst its existing projects are the RM150m Flood Mitigation Project Phase 1, road works and  affordable housing  projects  for SPNB  (RM624m). 

It  holds  LOIs worth RM1.5b  for  the  subsequent phases of Kuching Flood Mitigation, affordable housing and road works.Moving forward, local construction companies which  include Naim are expected  to clinch  infrastructure related works which are expected  to be rolled out closer  to the Sarawak election by 1Q11.

Reiterate BUY recommendation. We maintain our earnings forecast for FY10 and FY11 with target price of RM3.90 per share based on sum-of-parts valuation relative to PER approach. This suggests potential total returns more than 35% (including 2.7% dividend yield). Our SOP valuation is based on PER of 12.5x, 9.5x and 10x to the net earnings of its  2010  construction,  property  and  oil  and  gas  divisions  respectively.

Given  positive  outlook  on  the  respective divisions, the target PERs are within the average of their respective industry peers.

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