Stock Name: NAIM
Company Name: NAIM HOLDINGS BHD
Research House: KENANGA
Naim Holdings Bhd
(July 20, RM3.15)
Maintain buy at RM3.17 with target price of RM4.10: We met with Tengku Yusof and Bailey Kho, managing director and head of corporate affairs respectively, of Dayang Enterprise Holdings Bhd. We came away positive as the company is bidding for new projects from Petronas and adding new contracts to its existing RM1.1 billion order book. Dayang is seeing excellent market opportunities. Naim owns 36% of Dayang.
Significant numbers of offshore topside structural maintenance contracts are expected to be opened for tender over the next 6 to 12 months. In 2010, there will be RM2 billion worth of expiring maintenance contracts up for renewal and Dayang will be looking at bidding for some of these.
In March, Dayang announced that it had been awarded a RM400 million contract by Shell, boosting its order book to RM1.1 billion, which will last until 2015.
Earnings re-rating for Dayang is expected, given that it has a current tender book of RM540 million and there is RM1.3 billion in upcoming maintenance contract tenders from Petronas for the rest of 2010. Besides Dayang, bidders for these contracts are Petra Energy, Kencana, Shapadu and Vastalux.
However, we believe Dayang has a relative advantage given its bidding success rate of 75% and excellent track record of 100% on-time delivery over the last 20 years. One of the key reasons is its investment in sufficient operating capacity with four workboats and it has a strong marine fleet with 37 vessels to support its maintenance services. This has also enabled the company to enjoy high operating margins of 22%.
Besides strong earnings contribution, Naim's 36% stake in Dayang has already doubled in investment value given its low entry cost of 96 sen per share. Considering the last closing price of RM2.09, Naim has an unrealised investment gain of RM143 million. At 96 sen, the effective entry valuation in Dayang is only 3.6 times FY2011 EPS of 27.2 sen. Based on consensus estimates, Dayang could contribute net profit of RM24 million to Naim in FY2010 and RM35 million in FY2011 with possible further upgrade if awarded new contracts. These provide stable and recurring profit to Naim. At this juncture, we estimate Dayang contributing RM15 million in FY2010 and RM16 million in FY2011, hence we see room to raise our earnings estimates in Naim as well as our valuation.
Maintain buy for Naim, with a target price of RM4.10 applying 11 times FY2010F EPS of 36.9 sen and a 41% discount to the top three construction companies average of 16.9 times. Naim is the prime beneficiary of pump priming for SCORE, including potential infrastructure investments, and is in line to secure major projects. FDI will eventually draw new population growth into Sarawak, benefitting its property development division. ' Kenanga Investment Bank Bhd Research, July 20
This article appeared in The Edge Financial Daily, July 21, 2010.
Company Name: NAIM HOLDINGS BHD
Research House: KENANGA
Naim Holdings Bhd
(July 20, RM3.15)
Maintain buy at RM3.17 with target price of RM4.10: We met with Tengku Yusof and Bailey Kho, managing director and head of corporate affairs respectively, of Dayang Enterprise Holdings Bhd. We came away positive as the company is bidding for new projects from Petronas and adding new contracts to its existing RM1.1 billion order book. Dayang is seeing excellent market opportunities. Naim owns 36% of Dayang.
Significant numbers of offshore topside structural maintenance contracts are expected to be opened for tender over the next 6 to 12 months. In 2010, there will be RM2 billion worth of expiring maintenance contracts up for renewal and Dayang will be looking at bidding for some of these.
In March, Dayang announced that it had been awarded a RM400 million contract by Shell, boosting its order book to RM1.1 billion, which will last until 2015.
Earnings re-rating for Dayang is expected, given that it has a current tender book of RM540 million and there is RM1.3 billion in upcoming maintenance contract tenders from Petronas for the rest of 2010. Besides Dayang, bidders for these contracts are Petra Energy, Kencana, Shapadu and Vastalux.
However, we believe Dayang has a relative advantage given its bidding success rate of 75% and excellent track record of 100% on-time delivery over the last 20 years. One of the key reasons is its investment in sufficient operating capacity with four workboats and it has a strong marine fleet with 37 vessels to support its maintenance services. This has also enabled the company to enjoy high operating margins of 22%.
Besides strong earnings contribution, Naim's 36% stake in Dayang has already doubled in investment value given its low entry cost of 96 sen per share. Considering the last closing price of RM2.09, Naim has an unrealised investment gain of RM143 million. At 96 sen, the effective entry valuation in Dayang is only 3.6 times FY2011 EPS of 27.2 sen. Based on consensus estimates, Dayang could contribute net profit of RM24 million to Naim in FY2010 and RM35 million in FY2011 with possible further upgrade if awarded new contracts. These provide stable and recurring profit to Naim. At this juncture, we estimate Dayang contributing RM15 million in FY2010 and RM16 million in FY2011, hence we see room to raise our earnings estimates in Naim as well as our valuation.
Maintain buy for Naim, with a target price of RM4.10 applying 11 times FY2010F EPS of 36.9 sen and a 41% discount to the top three construction companies average of 16.9 times. Naim is the prime beneficiary of pump priming for SCORE, including potential infrastructure investments, and is in line to secure major projects. FDI will eventually draw new population growth into Sarawak, benefitting its property development division. ' Kenanga Investment Bank Bhd Research, July 20
This article appeared in The Edge Financial Daily, July 21, 2010.
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