Period

3Q15/9M15

Actual vs. Expectations

9M15 core net profit (CNP) of RM21.3m came in below expectations, accounting for 42% and 35% of our and consensus’ full-year forecasts. 9M15 CNP is derived after excluding: (i) unrealised forex gain of RM8.7m, (ii) share of associates of RM25.4m, arising from one-off fair value gain of RM82.1m in DAYANG’s acquisition of PERDANA, and (iii) inclusion of DAYANG’s CNP contribution of RM0.3m.

The negative variance was mainly due to significant reduction in gains from associates, caused by weakerthan- expected worker orders and consolidation of DAYANG and DAYANG’s loss-making subsidiary, PERDANA.

Dividends

None as expected.

Key Results Highlights

YoY, 9M15 CNP fell drastically by 78% to RM21.3m, on the back of lower revenue (-15%) and lower contribution from its associate (DAYANG). The lower revenue was attributable to lower contribution from substantially completed projects from both property (-34%) and construction (-3%) divisions while associate gains were low due to slower works carried out by oil majors, coupled with higher financing costs incurred by DAYANG.

QoQ, 3Q15 bottomline fell into core net loss (CNL) of RM2.3m from CNP of RM7.7m as revenue declined by 5% to RM132.2m. This is due to: (i) lower contribution from property segment (-5% in EBIT margin), due to lower property sales and lower progress of works achieved, and (ii) its associate barely making any profit after stripping off its one-off gain arising from the acquisition of PERDANA.

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 moving into 2016, due to the poor sentiment in the property market. The slowdown has already been felt as the group only managed to clinch RM77m new sales in 9M15, which was significantly lower than RM135m achieved in 9M14.

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: RM1.43).

Change to Forecasts

Following the disappointment in results, we slashed our FY15-16E core net profit by 21-34% to RM32.9-47.6m as we: (i) tweaked our property segment EBIT margin assumptions lower for FY15E, and (ii) factored in lower earnings contribution from DAYANG.

Rating

Maintain UNDERPERFORM

Valuation

Following the continuous disappointment in earnings and its inability to deliver despite having a strong orderbook of c.RM1.0b, we are maintaining NAIM at UNDERPERFORM with a lower Target Price of RM1.66 (previously, RM1.81) based on SoP, post our earnings downgrade. Our new TP implies FY16 PER of 8.3x, lower than small-mid cap peers’ average of 9.3x.

Risks to Our Call

Higher-than-expected property sales

Higher-than-expected construction margins

Source: Kenanga Research - 1 Dec 2015