Naim Holdings - Oil & gas boost in a weak FY11 BUY

Stock Name: NAIM
Company Name: NAIM HOLDINGS BHD

Research House: AMMB

Price Call: BUY

Target Price: 2.88

We maintain our BUY recommendation on Naim Holdings with alower fair value of RM2.88/share (previously: RM3.39/share) ' based on anunchanged 20% discount to its revised sum-of-parts (SOP) value.

The lower fair value encapsulates our earnings downgrade arisingfrom:- (i) more conservative new order book assumptions; (ii) higher interestexpense from its new Islamic bond facilities; and (iii) higher contributions/changesin the market value of its oil & gas associate, Dayang Holdings.

Naim reported FY11 figures which were largely in line with expectations.Stripping off an exceptional gain of ~RM10mil on the partial disposal of sharesin Dayang, core earnings dipped 62% YoY due to lower contributions from bothits property and construction divisions.

Property earnings fell by a sharp 80% YoY to RM14mil on theback of:- (i) fewer property launches in 2010; (ii) some delays in receivingapprovals; and (iii) changes in the designs at some of its planned launches. Asa result, property EBIT margin shrunk to 12% from 41% a year earlier. 

The construction division barely broke even in FY11 againsta RM42mil profit in FY10. This was mainly due to the substantial completion ofhigher-margin projects secured in 2010, coupled with a lack of new order book winsin 2011, when it only secured a solitary road contract in Fiji worth aroundRM12mil.

Dayang was the bright spot in 2011, where contributions jumped19% YoY to RM29mil. Dayang's outstanding order book of oil & gas contractsstands at RM1.4bil, providing job visibility at least until 2016. It accountedfor a significant 78% of Naim's core earnings for FY11 against 25% in FY10.

We are projecting FY12F net profit at RM55mil (+51% YoY), mainlyon the back of a rebound in Naim's property presales, which improved to overRM180mil from RM140mil a year ago. For FY12F, we have assumed a higher amountof RM240mil ' including some maiden sales from the redevelopment of the oilBintulu airport site.

Naim is also tendering for construction projects worth overRM2bil, including both public and private sector jobs in Sarawak. The group hasalso been short-listed under the Bumi category for the Sg.Buloh-Kajang MRTproject.  

Naim is trading at FY12F-14F PEs of 7x-9x, within themidrange of its historical trend average of 8x.    

Source: AmeSecurities