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Wednesday, November 18, 2009

Naim’s (RM2.95) 3Q profit up 44% to RM21m

Naim Holdings Bhd posted a 44% rise in net profit to RM21.4 million in its third quarter (3Q) ended Sept 30, 2009 from RM14.88 million a year earlier on the back of a 10.8% rise in revenue to RM144.46 million from RM130.33 million. Basic earnings per share (EPS) rose to 9.02 sen from 6.11 sen. It had on Sept 15, 2009 paid a first interim single-tier dividend of three sen per share. For the nine months to Sept 30, 2009, net profit rose 11.6% to RM59.89 million from RM53.66 million a year earlier, while revenue fell 1.7% to RM374.11 million from RM380.59 million. EPS rose to 25.26 sen from 22.04 sen.

Source: The Edge


Commentary:
A good counter to get exposure into the Sarawak construction sector. Current outstanding construction orderbook is approximately RM820mil which could last them for more than 2 years (Construction revenue is about RM300mil p.a. while property development revenue is approximately RM200mil). A strong contender for Sarawak projects.

Construction Orderbook: Naim is currently holding RM1.3bil (Could be revised up to RM2bil) LOI (Letter of Intent) for Kuching flood mitigation project of which Naim holds 50%, to be implemented over 10MP. This will translate into RM130mil p.a. revenue for Naim over the next 5 years. To recap, Naim has been awarded Phase 1 of this project worth RM149mil and works are still ongoing. This will further increase the likelihood of the following phases being awarded to Naim. Naim is also aiming for supply and installation of college equipment project worth RM100mil which is still at LOI stage, possibly converting into award in 3Q2010. Naim managed to secure about RM257mil worth of jobs YTD and possibly could replenish around RM400mil p.a. in 2010-2011 given the government's effort to speed up infrastructure projects in Sarawak ahead of Sarawak's state election somewhere in 2011. In addition, Naim is also offered a project to rehabilitate Fiji's national highway worth US$100mil (RM345mil). Nonetheless, it has not yet accepted the offer pending several issues to be ironed out.

Valuation: Valuation remains attractive. Net profit expected to exceed RM80mil in 2009 and could reach even RM95-100mil in 2010 backed by improving property sales in tandem with economic recovery, strong construction margins and potential awards from Fiji and SCORE (Sarawak Corridor of Renewable Energy). Earnings are further supported by its stake in Dayang which contributes more than RM20mil of earnings annually. EPS for 2009 and 2010 should be at least 32 sen and 38 sen respectively (Excluding earnings contribution from Borcos), translating into PER 2009 and PER 2010 of 9.2x and 7.7x respectively. On top of that, Naim's 36% associate company, Dayang also recently acquired 40% stake in Borcos which could contribute earnings of about RM9mil or 3.6 sen per share annually.

Assuming EPS 2010 of 41.6 sen (38 sen + 3.6 sen), share price should be above RM4.00 just by attaching PER of 10x. Share price should surge on more awards of projects, brighter property market outlook and stronger quarterly results performance.

Shares issued: 250mil
Market Cap: RM737.5mil
Net Gearing: 16%
Div Yield: 2.5%
Share Price: RM2.95
Revenue 2009 & 2010: RM530mil, RM650mil
Net Profit 2009 & 2010: RM80mil, ~RM100mil
PER 2009 & 2010: 9.2x & 7.1x

Disclaimer: The above article does not represent an investment advisory service as no subscription or management fees are charged. The contents of the article are provided as general information only and should not be taken as investment advice or as a recommendation to buy or sell any security or financial instrument. Any investment decisions carried out based on information, analysis, or commentary provided above is solely your responsibility. You should consult your investment adviser before making any investment decisions.

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