We maintain our BUY call, but cut our FY13-14 forecasts by 27% and 8% and FV by 8% to MYR5.63 (from MYR6.11) respectively. This follows the release of the 2QFY13 results, which missed expectations.  Still, we like Naim as it is the best proxy to the booming property markets in Miri and Bintulu, backed by massive oil & gas and heavy industrial developments in Sarawak. The stock is also a cheaper entry to 33.6%-owned Dayang.   

- 2QFY13 hurt by contract losses in Fiji.  Naim’s 1HFY13 core net profit missed  expectations  due  to  about  MYR30m  losses  at  the  construction division in 2QFY13 arising largely from a road job in Fiji.

- RM560m  new  construction  jobs  in  the  bag  for  FY13.   On  a  brighter note,  Naim  said  it  has  YTD  secured  new  construction  jobs  worth MYR560m  comprising  largely  subcontracting  works  for  MLNG  Train  9 and  a  sizeable  university  campus  project  in  Sarawak.  Its  outstanding construction orderbook currently stands at about MYR1.2bn.

- Another  strong  year  for  property  development.  Naim  reiterated  its guidance  for  another  record  year  for  property  sales  in  FY13,  backed  by its  bread-and-butter  launches  of  residential  units  and  shops  in  Miri  and Kuching.  This  is  in  addition  to  its  Street  Mall  shops  and  small  versatile offices (SOVO) at its MYR2bn integrated development, Bintulu Paragon, in  Bintulu.  Thus  far  in 1HFY13,  it  already  recorded  RM197m  in property sales from projects in Miri (67%), Bintulu (24%) and Kuching (9%).

- Forecasts.  We  cut  our  FY13-14  net  profit  forecasts  by  27%  and  8% respectively, after factoring in construction losses in 2QFY13, as well as the generally higher earnings risk for this division.

- Maintain BUY.  The fundamentals of the construction sector are strongly backed  by  ongoing  and  shovel-ready  mega  infrastructure,  property  and oil  &  gas  projects.  Naim’s prospects will  also  be  buoyed  by:  i)  the booming  property  markets  in  Miri  and  Bintulu,  backed  by  massive  oil  & gas  and  heavy  industrial  developments  in  Sarawak;  ii)  construction projects under Sarawak Corridor of Renewable Energy (SCORE); and iii) high earnings growth of Dayang Enterprise (BUY, FV MYR6.50)  We cut our FV by 8% to MYR5.63 (from MYR6.11), based on 10x revised FY14 EPS,  in  line  with  our  one-year  forward  target  10-16x  P/Es  for  the construction sector.

Source: RHB