We reiterate our OUTPERFORM recommendation and Target Price of RM4.45 for Naim. We appreciate Naim as one of the established Sarawak-based contractor-cum developers where: (i) it is able to achieve strong orders which exceeded our expectations (i.e. >RM500m annually), (ii) it has strategically located property in Sarawak (i.e. Miri and Bintulu city) with outstanding GDV of more than RM3.0b for the next 5-7 years, and (iii) Naim’s direct exposure in robust O&G sector via a 33.7% stake in Dayang Enterprise. We went on a one-day trip to Miri recently, organized by Naim’s Holdings management. The trip covered: (i) Naim’s prime property project in Miri, Bandar Baru Permyjaya (BBP), (ii) a site visit to Naim’s small pocket of landbank in Piasau, and (iii) a short tour of the overall Miri town. All in, we came away from the trip with a positive view on Naim’s presence in Miri. We believe Naim’s property project, BBP will continue to be the earnings driver for its property division for the next 3-5 years.

The biggest developer in Miri. Naim is the biggest property developer in Miri with a lion share of about 30% while the remainder 70% is fragmented among several small developers. Naim’s total landbank in Miri stood at 3000 acres of which 780 acres are still undeveloped. Naim’s flagship project is its famous township, BBP with a wide range of products including residentials (i.e. landed) and commercial properties (shophouses). It also owns a shopping mall in BBP that is 95% occupied, known as Permy Mall with net lettable area of 153k sq ft.

Strategic location. Naim’s BBP project is ideally situated adjacent to Miri town and the Miri’s petroleum hub, Lutong Town. It is about 12km northeast from Miri Town and about 3km east of Lutong Town. It is also adjacent to the Brunei Sg. Tujuh Customs Office border checkpoint (i.e. 20 minutes) and Curtin University of Technology Sarawak Campus (i.e. 10 minutes). We also understand that some of the BBP’s buyers are Bruneians mainly due to strategic location and accessibility. It only takes about 2.5 hour from Bandar Seri Begawan to Miri through the dual-carriageway expressway.

O&G: Key catalyst for Miri. Miri’s main economy contributor is its oil and gas industry, which contributes significantly to the Gross Domestic Product (GDP) of Sarawak. In fact, Sarawak Shell Berhad and Petronas Carigali have their headquarters based in Miri. Shell had already been in the city when it discovered oil way back in 1910 via its first oil rig, known as “the Grand Old Lady”. We also gather that other big O&G names in Miri including Nippon Oil, Schlumberger, Baker Hughes, Halliburton, Technip, Ranhill WorleyParsons and Petra Resources. It is proven that the growing O&G industry in Miri have catalysed Naim’s BBP project as most of the property buyers are O&Grelated employees, both local and expatriates. Other economic catalysts are the plantation, shipping and timber industry.

Property earnings driver. BBP has always been the earnings driver for Naim’s property division. Since listing, BBP has consistently generated about 70% of the Group’s property division earnings. In 1H13, BBP recorded new sales of more than RM130m, 66% of Naim’s 1H13 new property sales. Year-to-date, Naim still has 780 acres of undeveloped landbank in Miri which can generate about RM2.0b worth of GDV, providing medium-term earnings visibility.

Maintain OUTPERFORM. All in, we came away from the trip with positive view on Naim’s BBP project in Miri. Hence, we are maintaining our forecasts and OUTPERFORM recommendation with Target Price of RM4.45 based on SOTP-derived valuation. We appreciate Naim as one of the established Sarawak-based contractor-cum developers where: (i) it is able to achieve strong orders which exceeded our expectations (i.e. >RM500m annually), (ii) it has strategically located property in Sarawak (i.e. Miri and Bintulu city) with outstanding GDV of more than RM3.0b for the next 5-7 years, and (iii) Naim’s direct exposure in robust O&G sector via a 33.7% stake in Dayang Enterprise.

Source: Kenanga