Period

1Q15

Actual vs. Expectations

1Q15 core net profit (CNP) of RM17.6m came in within our expectation but below consensus’. The 1Q15 CNP accounts for 21.1% and 17.2% of our and consensus’ full-year estimates, respectively.

Dividends

None as expected.

Key Results Highlights

QoQ, 1Q15 revenue declined by 32% due to poor performance across all divisions. Nonetheless, CNP jumped by more than 7-fold thanks to reduced losses in the construction division. Recall, the group made huge provisions last quarter following potential LAD and doubtful debts.

YoY, 1Q15 revenue and CNP declined 18% and 37%, respectively, mainly due to: (i) lower property earnings given lower contributions from projects reaching completion, and (ii) losses in construction division following revision in the contract sum of some projects.

Outlook

We reaffirm our cautious view on the group’s earnings outlook after seeing the group recording two consecutive years of losses in its construction division despite its fairly strong orderbook of >RM1.0b.

As for its property division, management is adopting a cautious approach in 2015 due to the expectations of slowdown in the property market. In fact, the slowdown has already been felt as its new sales have declined by 39.6% in FY14 to RM200m. Nonetheless, on the bright side, the group managed to clinch RM40m new sales in 1Q15, higher than the RM26m in 1Q14.

Additionally, our in-house’s cautious view on O&G sector may not bode well for NAIM’s 29.1%-stake in DAYANG (MP; TP: RM2.50).

Change to Forecasts

We revised lower our FY15-FY16E earnings by 14.4% and 11.8%, respectively, to reflect recent earnings revision of Naim’s 29%-owned associate, Dayang. (Refer Dayang’s report dated 26th May 2015 titled “Resilient 1Q15”).

Rating

Maintain MARKET PERFORM

Valuation

Maintain MARKET PERFORM with revised Target Price of RM2.72 from RM2.82 previously. Our downward revision in TP is after: (i) imputing recent revision of Dayang’s earnings estimates, and (ii) rolling over valuation benchmark to FY16. Our new TP implies FY16 PER of 7.9x, in line with small-mid cap peers’ PER range of 8-14x.

Risks to Our Call

Failure to meet new contracts assumption

Higher-than-expected property sales

Higher-than-expected construction margins

Disappointment of Dayang’s earnings delivery

Source: Kenanga Research - 27 May 2015