Period  3Q13/9MFY13

Actual vs. Expectations Naim’s 9M13 core net profit of RM57.1m missed expectations, making up only 60% of both our and consensus estimates. The negative variance was mainly due to the further losses in its construction division. We have previously assumed a rebound in its construction arm from 3Q13 onwards from a RM25.6m operating loss earlier.

Dividends  As expected, an interim dividend of 3 sen was declared

Key Results Highlights QoQ, 3Q13 net profit jumped 97% due to low-base effect. In 2Q13, Naim’s construction division recognised operating losses of RM29.6m as compared to RM2.8m in 3Q13.

 YoY, net profit fell by 29%, hit by the further losses in construction division. We believe the reason that the segment suffered an operating loss of RM2.8m was due to higher operating costs incurred from resettlement scheme projects.

 YTD, net profit declined by 21% due to the weak construction division. On a brighter note, revenue and EBIT of its property division rose by 34% and 104% respectively thanks to higher sales recognition from its major on-going projects (i.e. Bandar Baru Permyjaya in Miri, Riveria in Kuching, and Desa Ilmu).

Outlook  Despite the weaker-than-expected results in 9M13 due to one-off negative event, Naim’s earnings prospect remains bright in the foreseeable future as it has managed to secure RM665m new contracts (additional new contract secured in 3Q13 worth RM105m), exceeding our FY13 assumption of only RM500m. We estimate its outstanding orderbook stands at RM1.3b which could last until 2016.

 Naim is also one of the prominent Sarawak players that will continue to ride on the Sarawak growth story coming from infrastructure spending within the SCORE project. It is one of the capable contractors and also a prime property developer in the state.

Change to Forecasts While making minor adjustment to our FY14 numbers (+1.6%) to reflect its new orderbook secured recently, we cut our FY13 core earnings by 19% to reflect: (i) higher-than-expected costs of its construction division and (ii) Dayang’s recent earnings revision by our O&G analyst.

Rating Maintain OUTPERFORM

 We are maintaining our OUTPERFORM recommendation on Naim as we believe its fundamentals remain intact driven by: (i) its ability to secure new projects of >RM500m since last year, (ii) robust property sales, and (iii) strong associate Dayang, which has been supporting its bottom-line.

Valuation  Target Price tweaked higher to RM4.50 from RM4.45 based on a SoP-based valuation. At RM4.50, the implied forward-PER stood is 8.6x, in line with our small-cap peers average.

Risks to Our Call (i) slower-than-expected of property sales, (ii) delays in construction projects, (iii) rising building material

Source: Kenanga