(April 8, RM3.40)
Maintain buy at RM3.44, fair value of RM4.60: This pegs the stock at an unchanged 25% discount to its estimated sum-of-parts (SOP) value of RM6.14 per share.
In an announcement to Bursa Malaysia on Wednesday, Naim's 36%-onwed associate Dayang Enterprise Holdings Bhd said it has received an oil and gas-related job from Sarawak Shell Bhd. The contract is valued at RM400 million and is to be undertaken over a period of five years.
The scope of works would include the provision of topside maintenance services. This represents the third contract secured by Dayang for FY10, taking total new orders secured to date to RM77 million against an outstanding order book of circa RM700 million to RM800 million.
The earlier two contracts involved a workboat charter for reservoir management to Brunei Shell, and the hook-up and commissioning activities at the Tangga Barat site.
More importantly, the latest development underscores Dayang's expanding order flows and further solidifies the group's position as a leading provider of oil and gas services within Sarawak's shores.
We project Naim's share of associate earnings from Dayang to expand RM17 million to RM24 million in FY10 to FY12 against RM15 million in FY08 amid its burgeoning contract pipeline. This would be further underpinned by full-year contributions from Syarikat Borcos.
We continue to like Naim as an excellent proxy play on the Sarawak Corridor of Renewable Energy (Score) ahead of the Sarawak state elections that are due by May 2011.
Naim's earnings deliverance is on the ascendancy. We project a record core net profit of RM86 million for FY10, rising to RM98 million to RM128 millio in FY11 to FY12 respectively. Valuations are undemanding at FY10 to FY11 price earnings (PEs) of eight times to nine times, at the lower end of its historical PE band of seven times to 13 times.
Near-term key re-rating catalyst would include new contract wins,and stronger than expected property pre-sales. - AmResearch, April 8
This article appeared in The Edge Financial Daily, April 9, 2010.