Naim, a Sarawak-based construction expert cum property developer, is currently trading at only 5.8 times financial year 2012 (FY12) and 4.9 times FY13 earnings per share (EPS), based on consensus earnings estimates.
And if we incorporate its 34%-owned associate, Dayang Enterprise's RM1.1bil market value, Naim's current share price implies that its construction and property business is valued at a mere 1.3 times FY13 EPS.
There is limited downside from current levels, premised on its attractive 6.6% yield (based on consensus' 32% payout assumption) and high payout track record (ranging from 24% to 41%).
It may be an even better bargain given that it is trading at only 0.5 time FY13 price-to-book value.
Its construction order book stands at RM1.1bil (firm orders, mostly in Sarawak), which is more than enough to sustain three years earnings visibility given relatively low annual burn rate of RM250mil to RM300mil.
Its latest My Rapid Transit (MRT) contract win worth RM208mil (announced on July 31) also underpins its competitiveness; it is the first east Malaysian contractor to be awarded one of the main packages of the MRT project.
Future prospects remain bright with the development of the Sarawak Corridor of Renewable Energy (SCORE), in which Naim is poised to be one of the largest beneficiaries as the local champion.
Property sales remain robust in Sarawak supported by the booming oil and gas industry.
Naim's unbilled sales stand at RM176mil and take-up for its new launches has been strong. Naim generated RM184mil sales in FY11, the best since FY07.
The strong sales performance will translate into sound financial results over the next two years.
Naim will be positioning itself as a property developer rather than a construction contractor given better margins in property development.
While revenue contribution from both segments will remain 50:50 in the near term, Naim is targeting a 60:40 bias towards property development.
Notable upcoming launches include RM175mil street mall at Bintulu Old Airport and RM130mil mixed development in Miri.
The crown jewel is its large 2,620-acre land bank in and around three major cities in Sarawak like Kuching, Miri and Bintulu. Those land may be developed into property projects worth RM9.5bil in gross development value.
We understand from the management that its land bank is carried at low holding costs, implying significant upside potential.
Its 34%-owned associate, Dayang Enterprise, remains a major earnings contributor at 34% of group earnings in the first quarter of 2012. Although there are concerns over Naim disposing its Dayang stake, we feel that is unlikely to happen soon as Naim's earnings will be severely eroded without Dayang's contribution.
