Period

2Q15/1H15

Actual vs. Expectations

1H15 core net profit (CNP) of RM26.0m came in below expectations, at 37% and 34% of our and consensus full-year forecast, respectively. The let down in earnings was mainly due to slower-thanexpected progressive billings from both its property and construction divisions.

Dividends

None as expected.

Key Results Highlights

YoY, 1H15 core net profit declined sharply by 54% attributable to lower revenue (-15%) coupled with a decline in associate contribution (-31%). The lower revenue was mainly due to slow progressive billings from both its property and construction divisions, while lower associate (DAYANG)’s contribution was due to lower work orders received and performed.

QoQ, its 2Q15 core net profit plunged by 52% to RM8.4m, despite a growth in revenue of 9%. The main drag was from its property division whereby its operating margin contracted by 18ppt to 5%, due to high operating costs, registering an operating profit of only RM2.0m (-83%).

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 a 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 1H15/2Q15, higher than the RM26m achieved in 1H14/2Q14.

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: RM1.67).

Change to Forecasts

Following the disappointment in results, we slashed our FY15E-16E core net profits by 29%-26% to RM50.1m-RM60.0m, as we lowered our margin assumptions for both its property and construction divisions.

Rating

Downgrade to UNDERPERFORM

Valuation

Following the disappointment in earnings and its inability to deliver despite having a strong orderbook of c.RM1.0b, we are downgrading NAIM to UNDERPERFORM from MARKET PERFORM with a lower Target Price of RM1.81 (previously, RM2.72) based on SoP, post our earnings downgrade. Our new TP implies FY16 PER of 7.1x, in line with small-mid cap peers average of 7.5x.

Risks to Our Call

Higher-than-expected property sales

Higher-than-expected construction margins

Source: Kenanga Research - 28 Aug 2015