1Q17 Core Net Loss (CNL) of RM11.3m missed our and consensus earnings expectations of RM37.5m and RM56.0m respectively. The negative variance is largely due to unexpected losses from their 26% associate DAYANG coupled with slower-than-expected billings from their construction division. No dividends declared as expected. Cease coverage due to the 8th consecutive disappointment in earnings.

Below expectations. 1Q17 Core Net Loss (CNL) of RM11.3m missed our and consensus earnings expectations of RM37.5m and RM56.0m respectively. The negative variance is largely due to unexpected losses from their 26% associate DAYANG coupled with slower than expected billings from their construction division. No dividends declared as expected.

Results Highlights. 1Q17 CNL of RM11.3m improved YoY against 1Q16 CNL of RM13.9m due to (i) better construction margins given that 1Q16 experienced construction cost overruns and (ii) lower taxation (-33%). 1Q17 CNL widened against 4Q16 CNL?s of RM2.9m mainly due to (i) their associate Dayang sinking into the red registering an associate loss of RM13m vs 4Q16 in which Dayang contributed a profit of RM14m. That said, we note that contributions from their construction segment registered a marginal EBIT profit of RM0.6m (vs loss of RM13.2m QoQ) despite lower construction revenue (-39%) likely due to the mix of jobs having less cost overruns.

Outlook. YTD, NAIM has yet to secure a contract out of our RM300m replenishment for FY17. We understand that the Pan Borneo project which makes up a lion share within their outstanding orderbook has achieved 4-5% progress (slightly behind schedule) and we expect contribution to pick up for the remaining part of the year. Meanwhile, NAIM?s 1Q17 property sales of RM52m accounting for 43% of our RM120m target is deemed broadly within expectation given that NAIM has only 1 planned launch for the remainder of year namely Sapphire Deluxe. Hence, we make no changes to our sales estimates. Currently, property unbilled sales stand at c.RM110m providing c.1.0 year visibility.

Cease Coverage. Post results, we cease coverage (previously UP; RM1.38) on NAIM as (i) it has disappointed our forecast for the last 8 quarters, (ii) it has consistently displayed volatile earnings/losses, especially within their construction segment, likely due to the numerous delays in executing its on-going projects and (iii) the dividend in specie by DAYANG in which NAIM would be assuming c.10% associate stake in loss-making PERDANA (currently suspended) would not bode well with the group as we anticipate fair value losses from PERDANA once suspension is lifted.

Source: Kenanga Research - 30 May 2017