Period     1Q13

Actual vs. Expectations    Naim’s 1Q13 estimated core net profit of RM30.2m came in within ours but above the consensus expectations, making up 27% and 31% of ours and the street’s estimates. We have excluded the extraordinary gain of RM11.0m from its associate, Dayang Enterprise.

This was following the re-measurement of Dayang’s investment in Perdana Petroleum Bhd (PERDANA; OP, TP: RM2.18) from an available-for-sale investment to an equity-accounted associate.

Dividends    There was no dividend declared in 1Q13.

Key Results Highlights   QoQ,  despite the revenue falling by 11% to RM129m, Naim’s core net profit jumped by a whopping 166% to RM30.2m. This is one of the strongest quarters that Naim has ever recorded in the past 10 quarters. The stellar performance was mainly driven by the significant improvement in its associates income from Dayang Enterprise (87%QoQ, 63%YoY). The net margin also expanded tremendously to 23% in 1Q13 as compared with that of 8% in 4QFY12.  

YoY,  both the revenue and net profit surged by 37% and 88% respectively thanks to higher contribution from the property division and associates income. We believe the stronger property division’s revenue was contributed mainly from a higher sales recognition from its major on-going projects (i.e. Bandar Baru Permyjaya, Desa Ilmu and Riveria) that have reached their tail-end of completions. Management updated that its property sales value exceeded RM79m in 1Q13.

Outlook    With likely more launches in 2013 and these being in the prime areas in Sarawak (i.e. Bintulu, Kuching and Miri), we expect Naim’s property division to continue to register stronger earnings in foreseeable future.

Meanwhile, Naim’s outstanding order book of c.RM970m will also provide it with an earnings visibility of at least the next three years.

Change to Forecasts     Although the results were broadly in line with our expectations, we have adjusted higher our earnings estimates by 1%-14% for FY13 and FY14. This is to reflect our in-house’s new Dayang’s earnings estimates (refer Dayang’s Quick Bites today)   We are maintaining our OUTPERFORM recommendation on Naim after adjusting higher its associate, Dayang’s valuation subsequent to its earnings adjustment. As such, we have a higher valuation of RM3.51/Naim share now for Dayang in our SOP-based valuation (from RM1.77/Naim share dated 7 th May 2013).

Rating  Maintain OUTPERFORM

Valuation     Out Target Price has been accordingly revised higher to RM4.45 (from RM3.70) based on a SOP-based valuation. 

Risks    Slower than expected property sales

Delays in construction projects.

Rising building material costs.

Source: Kenanga