At RM1.03, NAIM is only trading at 0.41x P/B (33% below 10Y average and peers’ average of 0.6x) and 0.43x to its revised RNAV of RM2.32 (after applying a huge 30% investment holding discount). We believe such steep discounts could provide sufficient margin of safety and cushion further price fall, thanks to the stable earnings from its O&G division, strong construction order book of RM1.5bn and expectations of more pump-priming activities before Sept 2021 Sarawak state election. Technically, the stock is ripe for further advance towards RM1.10-1.26 zones after staging a positive downtrend line breakout.

NAIM – A good proxy to Sarawak’s stimulus measures, backed by a ~RM1.5bn sizeable orderbook (~3.6x FY18 construction revenue). To recap, the state government has allocated c.RM9bn for development expenditure under state budget 2019 which is the biggest in the history of the state. Funding for those projects is expected to come from Sarawak’s state reserves (c.RM31bn) which may insulate the projects from risk of reduction of federal government spending. Overall, the momentum of project flows in Sarawak should also gain traction as the next state elections must be held before Sept 2021. Currently, NAIM has a sizeable construction order book of c.RM1.5bn and is slated to win more projects in future based on its track record in various notable projects such as Sabah O&G Terminal, MRT Lembah Kalang/Sg Buloh-Kajang, Pan Borneo Highway etc.

At present, NAIM has sizeable development land banks ~2500 acres in Sarawak with low holding cost, mostly located in critically masses population areas like Kuching and Miri. With its flagship property developments known as Naim Bandar Baru Permyjaya in Miri, Naim Kuching Paragon integrated development, Naim Desa Ilmu and Naim Riveria in Kuching and Naim Bintulu Paragon integrated development in Bintulu, Naim has built and developed more than 20,000 properties for the Sarawak community.

Dayang – Naim’s crown jewel. HLIB expects a sequentially stronger 2H19 as upstream activities gain traction post monsoon season, underpinned by an order book of c. RM3.3bn. Furthermore, we understand that Dayang’s 60.5% owned Perdana (Not-Rated) is eyeing to achieve average utilisation of >80% in 2H19 (vs 57% in 1H19). Perdana continues its sequential improvements, as vessel utilisation continues to pick up steadily. In the interim, apart from existing contracts, we don’t discount Dayang receiving additional lump sum work orders and variation orders (VOs) from clients that could’ve been undertaken in 3Q19. Prospects for Dayang remains rosy in the mid-term; other potentials would be coming from decommissioning and abandonment of structures, Petronas’ rejuvenation and EOR (expected oil recovery) EPCC contracts as well as maintenance contracts within the ASEAN region.

Upside bias following a positive downtrend line breakout. After undergoing a range bound consolidation over the past four weeks within RM0.925-1.10 band, the stock finally broke the downtrend line from 52W high at RM1.44 (14 March) successfully in high volume of 7.37m shares transacted (vs 20D average of 5.7m shares) yesterday. In our view, the stock is at the tail end of the downtrend and augurs well for further recovery, supported by decisive close above major SMAs. Further resistances are located at RM1.10 (14 Oct high) and RM1.17 (20 Aug high) before reaching our LT objective at RM1.26 (76.4% FR) barrier. Key supports are situated at RM1.00 psychological level RM0.97 (10W SMA). Cut loss at RM0.94.

Source: Hong Leong Investment Bank Research - 20 Nov 2019