Naim, well-covered Sarawak play

KUALA LUMPUR: On the face of it, Naim Holdings Bhd, which was listed in April 2008, is possibly one of the most well-covered Sarawak-based companies on the stock exchange today.

The company, primarily involved in construction and property development, is 23.4% owned by Abdul Hamed Sepawi, who in turn is closely linked to Sarawak's chief minister Tan Sri Abdul Taib Mahmud.

Interestingly, the biggest contract Naim secured of late was not in the construction or property sector, but in oil and gas (O&G).

Naim made headlines when it won the RM2.4 billion Sabah Oil and Gas Terminal (SOGT) project late last year together with its joint-venture partner Samsung Engineering Co Ltd.

OSK Research said Naim is a potential runner for the equipment supply contract and phase 2 of the Kuching flood mitigation project. The contracts are worth some RM350 million.

The research house also expects Naim to bag a few rural road jobs in Sarawak and did not discount the possibility of the company securing more jobs in Fiji.

OSK noted that although the jobs in Fiji are initially making losses due to high start-up costs, they are now closer to breaking even and are expected to be back in the black next year.

It is also expected to receive added O&G "kickers" from its associate Dayang Enterprise Holdings Bhd.

For FY09, the construction division contributed 61% to revenue, while property development contributed 32%. During the fiscal year under review, Dayang contributed RM16 million to Naim's bottom line.

Naim posted a net profit of RM84.99 million in FY09, on the back of RM566.92 million in revenue.

The stock's performance in the previous state election in 2006 may tempt investors too follow the counter closely as the 2011 Sarawak state election draws near.

It is worth noting that Naim's share price rose by some 13% three months leading to the dissolution of the state assembly on April 28, 2006.

Apart from the election play, Naim's share price performance over the years may also be due to its strong financial performance.

Naim has been profitable over the last three financial years. Most recently, the company posted a net profit of RM75.3 million in the nine-month period ended Sept 30, 2010, up 26% from a year earlier on improved revenue of RM420.29 million.

Over the past one year, Naim's shares gained more than 13%. The counter was trading between RM2.68 and RM3.80 on an average volume of 151,240 shares done daily.

Its shares closed at RM3.60 on Feb 2.

Prospects also look commendable for Naim. Consensus for FY Dec 31, 2011 earnings are at RM110.53 million and RM133.25 million for FY12.

This translates into a FY11 price-to-earnings ratio (PER) of 7.8 times and 6.5 times for FY12.

Naim's forward PER is undemanding when compared with its peers such as Hock Seng Lee Bhd, which is trading at a double-digit PER.

It is therefore not too surprising that institutional investors picked up Naim shares of late.

Lembaga Tabung Haji owns a 10% interest in the company while the Employees Provident Fund owns 4.99%.

The stock has had "buy" recommendation from all the four research houses covering the stock since November 2010, with a consensus target price of RM5.06, which is a 45% upside from its last traded price of RM3.50.

The counter reached its highest level in six months on Nov 2, 2010 at RM3.83.

Although its share price dipped slightly in the recent month, OSK Research said this provided an excellent buying opportunity.

NB: It has been brought to our attention on Tuesday, Feb 8, that the statement "Naim Holdings Bhd is 23.4%-owned by Datuk Abdul Hamed Sepawi" is incorrect, as he owns only 40,117,700 or 16.04% of the paid-up capital of the company.