We maintain Buy call following the release of 1QFY13 results that came in above expectations.  We raise forecasts by 7-16%, having updated forecasts of 33.6%-owned Dayang.  Fair value is raised by 16% to MYR4.51 (from MYR3.90).  We like Naim as it is the best proxy to the booming property market in Bintulu backed by massive industrial development in Samalaju.  It also provides a cheaper entry to Dayang. 

Strong 1Q.  Core 1QFY13 net profit of MYR30.2m (excluding share of gains of MYR11m from the reclassification of Dayang’s investment in Perdana Petroleum to an equity-accounted associate from an available-for-sale asset) beat expectations, already making up 32-35% of our full-year forecast and the full-market consensus net profit.  The key variance against our forecast came largely from stronger-than-expected performance by Dayang.    

Strong years ahead.  During an analysts’ briefing in Mar 2013, Naim guided another record year in terms of property sales in FY13, underpinned by new launches worth MYR900m 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.  Naim also guided new construction contract wins of about MYR500m in FY13 that are most likely to come from “infrastructure works in Sarawak, particularly, road jobs”.  At present, its outstanding construction orderbook stands at MYR1bn.

Maintain Buy.  Post the 13th general election, we believe investors should refocus on sector fundamentals that are reasonably attractive underpinned by a construction upcycle.  For Naim, it will also be buoyed by: (1) The booming property market in Bintulu; (2) Construction projects under Sarawak Corridor of Renewable Energy (SCORE); (3) Sustained high construction margins given limited competition from only a small pool of Sarawak-state-registered (UPK) contractors for most public jobs in Sarawak; and (4) High earnings growth of 33.6%-owned Dayang.  Fair value is raised by 16% to MYR4.51 (from MYR3.90) based on 12x revised FY14 EPS, in line with our 1-year forward target PER for the construction sector of 10-16x.

Source: RHB