COMPANY UPDATE TA Securities Wednesday, 03 October, 2012 A Member of the TA Group FBMKLCI: 1,651. 03

MENARA TA ONE, 22 JALAN P. RAMLEE, 50250 KUALA LUMPUR, MALAYSIA TEL: +603-20721277 / FAX: +603-20325048 Sector: Construction

Naim Holdings Bhd TP: RM 3.17 (+75.1%) SCORE, the Next Growth Catalyst Last traded: RM1.81

BUY THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY*

TA Research Team Coverage +603-2072-1277 ext:1635 [email protected] www.taonline.com.my

We understand that the Corridor Renewable Energy (SCORE) has SHARE INFO secured investments totaling RM24.63bn from 17 projects. In addition to this, Bloomberg Code NHB MK Bursa Name NAIM negotiations were ongoing with 16 other investors for a potential investment of Stock Code 5073 RM13bn. Listing Main Market Share Cap (m) 250.0 With Press Metal Bhd expected to commence full operation end of this year and Market Cap @ RM (RMm) 452.5 Par Value (RM) 1.00 nd Tokuyama Malaysia Sdn Bhd to start operation in 2 quarter 2013, we expect 52-wk Hi/Lo (RM) 2.39/1.54 the development to give a boost of confidence to potential investors and 12-mth Avg Daily Vol (000' shrs) 296.7 anticipate the investment and development in Samalaju to gain momentum Estimated Free Float (%) 38.4 after the pioneers have moved in, as experienced in the development of Beta 1.287 Major Shareholders (%) Iskandar Malaysia. Island Harvest - 12.25 Tapak Beringin - 10.96 We expect Naim to gain from some of the construction works related to the Lembaga Tabung Haji - 9.99 infrastructures and setting up of manufacturing facilities, as well as the spill- Datuk Hasmi Hasnan - 6.67 Naim Holdings Bhd - 5.22 over effect to property sector within the corridor. Table below depicts some of Skim Amanah Saham - 5.00 the potential projects in SCORE that could benefit Naim. FORECAST REVISION FY12 FY13 Table 1: Potential projects in SCORE that could benefit Naim Forecast Revision (%) - - Project Estimated Investment Net profit (RMm) 79.4 84.4 (RMbn) Consensus 78.3 87.2 TA/Consensus (%) 101 97 Tokuyama Polysilicon Plant Phase 2 3.0 Previous Rating Buy (Maintained) Pulp & Paper Mill 4.0 FINANCIAL INDICATORS FY12 FY13 600MW Balingian Coal Fired Power Plant 2.5 Net debt/equity (%) 10.2 10.0 500kV Transmission Line (600km) 1.5 CFPS (sen) (5.6) (23.8) Petronas LNG Train 9 6.0 P/CFPS (x) nm nm Bintulu Samalaju Port 1.2 ROA (%) 6.0 5.9 Limbang 45MW & 200MW HEP Dam 4.0 NTA/Share (RM) 3.2 3.5 Baram 1,000M W HEP Dam 4.0 Price/ NTA (x) 0.6 0.5 770MW HEP Dam 3.5 SHARE PERFORMANCE Balleh 960MW HEP Dam 4.0 Price chg (%) NAIM FBMKLCI 1 mth (3.2) 0.3 Asia Mineral Manganese Smelter Plant 4.0 3 mth 4.6 3.1 OM Holdings Manganese Smelter Plant 4.0 6 mth (5.7) 2.9 Press Metal Aluminium Smelter Plant 6.0 12 mth 7.7 19.0 TOTAL 47.7

Source: Company, TA Research (12-Mth) Share Price relative to the FBM KLCI

Samalaju New Township Before the launch of the 5,200 acres new township development North of Samalaju Industrial Park middle next year, Samalaju Property Development, a joint venture (JV) between Cahya Mata Sarawak Bhd, Naim Holdings Bhd and the Bintulu Development Authority (51:39:10), has set up a RM40mn temporary workers camp at Samalaju that can accommodate 5,000 people. Expansion plans are in place to cope with the rising demand from Tokuyama, which need about 8,000 workers at the peak of its construction stage. Currently

the JV is operating the workers camp and collecting accommodation charges. Source: Bloomberg

Page 1 of 3 TA Securities A Member of the TA Group 3-Oct-12

The phase 1 of the township development will involve 600 acres with an estimated GDV of RM1.2bn. By 2020, it is expected the population would grow to be at least 30,000 residents. The whole township development is expected to provide Naim stable income for the next 10-15 years.

Property Development Naim has locked in property sales of RM190mn in 1H12, about 2/3 of its RM300mn sales target for FY12. It is on track to launch the Street Mall with an estimated GDV of RM175mn in 1H13, which is a part of its New Bintulu City Centre development with total GDV of RM2.3bn.

The large acreage of landbank (2,620 acres) with estimated remaining GDV of RM9.5bn will support the earnings of Naim for at least a decade to come. (See Table 2)

Table 2: Landbank with Estimated Remaining GDV Estimated Remaining GDV Development Project Land Size (acre) (RM million) Bandar Baru Permyjaya 959 1,807 Riveria Perdana 447 1,592 Sultan Tengah 83 22 Bintulu Old Airport 42 2,321 Batu Lintang 34 1,802 Pantai Residence 37 251 Piasai Camp 5 91 Upland 5 37 Desa Ilmu & Riveria 16 92 Desa Labang 991 1,447 TOTAL 2,620 9,527 Source: Company, TA Research

Forecast No change to our FY12-14 earnings projections. The group has an outstanding order book of RM1bn as of 1 July 2012. This will keep the construction team occupied for another 2-3 years.

Table 3: Major Ongoing Construction Projects (1 July 2012) Contract Outstanding Project Value Order Book (RMmn) (RMmn) 2,089 low cost houses 15. 86 2.78 Affordable housing projects 560. 46 261. 09 Complex Islam 98. 18 11. 44 Sabah Oil & Gas Terminal 244.40 93.42 Jalan Kampung Semadang – Bau 68.7 2 2. 15 Bengoh Dam resettlement scheme 160.2 2 43. 85 Bengoh Dam resettlement scheme (204 units Rumah Mesra Rakyat) 19.38 19.38 Murum Dam Resettlement Scheme 190.65 190.65 Terbat road 35.0 0 35. 00 Adtech Equipment 72. 66 72. 66 Rehabilitation and maintenance of Fiji National Highway 147.67 65.79

Elevated stations for KVMRT package S4 208.15 208.15 TOTAL 1, 821.35 1006.36 Source: Company, TA Research

Page 2 of 3

TA Securities A Member of the TA Group 3-Oct-12

Valuation Based on 10x CY13 construction earnings, 6x property earnings and a 20% holding discount to 14x O&G earnings, we arrive at the fair value of RM3.17/share.

Naim’s 33.63% stake in Dayang Enterprise Holdings Bhd alone is worth RM1.58/Naim share (based on Dayang’s previous closing price of RM2.13/share). This value the property and construction businesses which contributed about more than 70% to Naim’s total earnings in 1H12 at only 23sen/share or at an estimated price/earnings ratio of only 1 time, besides the 2,620 acres of land held by Naim at relatively low entry cost.

We are of the opinion that Naim is grossly undervalued. With the earnings appears to have normalised and recovered to previous level after the exceptional low earnings in FY11, we see the potential of share price recovery to previous range We reiterate Buy call on Naim.

Earnings Summary FYE Dec (RMmn) 2010 2011 2012F 2013F 2014F Revenue 612.7 409.6 450.1 641.3 649.9 EBITDA 123.3 34.7 83.2 94.0 91.6 EBITDA margin (%) 20.1 8.5 18.5 14.7 14.1 EBIT 109.4 21.7 69.4 81.9 80.9 Net finance cost (3.8) (10.2) (13.9) (20.8) (20.8) Associates & JV 26.5 45.9 52.5 53.8 45.7 Profit Before Tax 132.0 57.3 108.0 114.8 105.8 Net profit 97.8 46.9 79.4 84.4 77.8 EPS (sen) 41.3 19.8 31.7 33.7 31.1 PER (x) 7.7 16.0 10.0 9.4 10.2 Dividend (sen) 10.0 8.0 10.0 10.0 10.0 Dividend Yield (%) 3.15 2.52 3.15 3.15 3.15 ROE (%) 14.2 6.4 10.2 10.0 8.6

Disclaimer The information in this report has been obtained from so urces believed to be reliable. Its accura cy or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein. for TA S ECURITIES HOLDINGS BERHAD (14948-M) (A Participating Organisation of Bursa Malaysia Securities Berhad) Kaladher Govindan – Head of Research

Page 3 of 3