We upgrade our call to Buy (from Sell) and lift our fair value by 119% to RM3.42 following the company’s analysts’ briefing last Friday during which favourable guidance on earnings outlook was issued. We also like the company for its initiatives to try shaking off its Sarawakcentric and owner-operator image/model. If we liken Naim to Hokey Pokey, the plain vanilla ice cream basically comes free at this price.

Another strong year in store for property development. Naim guided another record year in terms of property sales in FY12/13, underpinned by new launches worth RM900m of which half will come from shops, offices and condominium units at its RM2bn integrated development Bintulu Paragon in Bintulu, with the balance from landed/high-rise residential units and shops in Kuching and Miri.

RM500m new construction orderbook target in FY12/13. Naim guided new construction contract wins of about RM500m in FY12/13 that are most likely to come from “infrastructure works in Sarawak, particularly, road jobs”. At present, its outstanding construction orderbook stands at RM978m.

Shaking off its Sarawak-centric and owner-operator model/image? We believe two key reasons behind Naim’s discount valuations to the sector and market are it being a Sarawak-centric company and its business model that is perceived to be deeply entrenched “owner-operator”. These are changing with Naim’s expansion to Peninsular Malaysia as well as the hiring of more professional managers.

Forecasts. FY12/13 net profit forecast is fine-tuned up by 3%.

Investment case. Fair value is rationalised up by 119% to RM3.42 based on 10x FY12/13 EPS from RM1.56 based on “sum of parts” previously. From an alternative valuation standpoint, an investor who acquires Naim shares at the current level is effectively getting Naim for merely the price of its 33.6% stake in topside maintenance specialist Dayang. Upgrade to BUY from Sell.

Source: RHB Research - 04 Mar 2013