Naim not spared in gloomy property outlook

KUALA LUMPUR (Nov 30): Naim Holdings Bhd has not been spared in the gloomy Sarawak property outlook, suggesting that the sluggish sentiment in the sector is not only skewed towards Peninsular Malaysia.

In notes to Bursa Malaysia accompanying its financial results last Thursday, the Sarawak-based property and construction firm said its weaker financial performance was attributable in part to the slow demand for properties in Sarawak.

"We are disappointed with the current results. This is due in part to the sluggish demand for property in Sarawak over the past two years, amid fears of overheating in the property sector affected by uncertainties over the increasing cost of commodities, rising interest rates and decreasing purchasing power," Naim said.

The company saw its net profit for 9MFY11 ended Sept 30 drop 44% to RM41.6 million from RM75.3 million a year ago. Revenue declined 24% to RM318.7 million during the period in review from RM420.3 million a year earlier, while earnings per share fell to 17.58 sen from 31.78 sen previously.

Regulatory bodies tightening controls could also dampen the prospects of property companies.

Bank Negara Malaysia recently announced new financing rules starting next year, which require loan applicants to go through a more exhaustive process when applying for loans, including mortgages.

However analysts said banks had already tightened lending policies over the past few months, even before the new guidelines were introduced.

"We understand banks have not been too generous on financing margins and this very much depends on the applicant's existing debt obligations," according to a research report dated Nov 21 by AmResearch.

Despite the weak fundamentals in the sector, Naim managed to register property sales of RM170 million for the nine months ended Sept 30, 2011, surpassing a total of some RM145 million registered for the entire year in 2010.

Naim said the company is making inroads into the upcoming Bintulu property market, leveraging its landbank in the prime location of the old Bintulu airport as well as setting up an office in Kota Kinabalu, to pave the way for expansion to Sabah.

According to analysts, the company is finalising the details of the maiden launch of a mixed-used commercial development located on 37 acres of land within the old Bintulu airport. The project has an estimated gross development value (GDV) of RM1.5 billion. The next leg up would be 33 acres of prime land at Batu Lintang within Kuching.

OSK Research said: "But we feel that take-up rates could be weak with a softening property market."

In a note on Nov 26, the research house downgraded its call on Naim to "sell" given its less than optimistic outlook. OSK revised Naim's fair value downward to RM1.56 from RM1.83 previously.

AmResearch has revised Naim's fair value downward to RM3.39 (from RM3.72 previously) and MIDF to RM2.43 (from RM4.65 previously), though maintaining a "buy" call on the company.

Naim shares have shed almost half their value year-to-date, and closed at RM1.69 on Tuesday.