NIAM ... Jul10

KENANGA RESEARCH on Naim Holdings

Positive outlook for Dayang
We met with Tengku Yusof and Bailey Kho, Managing Director and Head of
Corporate Affairs of Dayang Enterprise Holding Bhd. Following the meeting,
we came away positively as the company is actively bidding for new projects
from Petronas and adding new contracts to its existing RM1.1bn order
book. Dayang is seeing an excellent market opportunities. Naim owns 36% of
Dayang

- Positive market outlook for Topside Maintenance.
Significant amount of offshore topside structural maintenance contracts is expected to be open for tender over the next 6-12 months. In 2010, there will be RM2.0b worth of expiring maintenance contracts up for renewals. Dayang will be looking at bidding for some of these contracts.

- Large orderbook of RM1.1b.
In March 2010 Dayang announced that it has been awarded RM400m contract by Shell, this has boosted Dayang’s order book to RM1.1b which will last till 2015.

- Potential new contracts on the horizon.
Earning rerating for Dayang is expected given that it has a current tender book of RM540m and there is RM1.3b upcoming maintenance contracts tenders from Petronas for the remaining part of 2010. Besides Dayang, bidders for these contracts are Petra Energy, Kencana, Shapadu & Vastalux. However, we
believe Dayang has a relative advantage given its bidding success rate of
75% and excellent track record of 100% on time delivery over the last 20
years. One of the key reasons is its investment in sufficient operating
capacity with 4 workboats and has a strong marine fleet size with 37
vessels to support its maintenance services. This has also enabled the
company to enjoy high operating margin of 22%.

- Oil & Gas – a growing earnings contributor for Naim .
Besides strong earnings contribution, Naim’s 36% stake in Dayang has already doubled in investment value given its low entry cost of only 96sen per share of and considering the last closing price of RM2.09, Naim has an unrealized investment gain of RM143m. At 96sen, the effective entry valuation in Dayang is only 3.6x FY11 EPS of 27.2sen. Based on consensus estimates, Dayang could contribute net profit of RM24m to Naim in FY10 and RM35m in FY11 with possible further upgrade if awarding new contracts. These provide stable and recurring profit to Naim. At the juncture, we only
estimate Dayang contributes RM15m in FY10 and RM16m in FY11, hence, we see room to raise our earning estimates in Naim as well as valuation.

- BUY maintain for Naim with a price target of RM4.10 applying a 11x FY10F EPS of 36.9 sen and a 41% discount to the top three construction companies average of 16.9x. Naim is the prime beneficiary of pump priming for SCORE including potential infrastructure investments and is in line to secure major projects while FDI will eventually draw new population growth into Sarawak benefitting its property development division.