Sunday, May 6, 2012

Naim Holdings Bhd… dated April 2012

A well connected property and construction company in Sarawak , is in unfamilar territory. Its rm500 million debt papers is in question after RAM revised the long term rating of the group from stable to negative.

The reason is due to Naim’s declining financials.

Naim’s construction division had realised lower contract billings following delays caused by land issues bleak weather and design chanhes. The division also did not secure any notable new contracts in 2011. At the same time, the property division’s progress billings had declined due to delayed launches of new projects.

Its two largest shareholders are Datuk Hasmi who has a 22.86%s stake and Datuk Abdul Hamed who owns 16.06% stake. Datuk Abdul is a cousin of Sarawak Chief Minister Tan Sri Abdul Taib.

Naim has drawn down rm300 million of its rm500 million MTN facility. It is notable that Naim’s debt paper is at the holding company level, which means it does leave the company much room to gear up further.

As at end Dec 2011, Naim had cash and cash equivalent of rm214 million. On the other hand, the group had non current liabilities of rm340 million while short term borrowings of rm7.91 million.

Naim has to maintain an annual interest cover ratio of at least four times for the bond.

The company has property development and construction jobs on hand, but there have not been any new launches.

NAIM plans to incur hefty debt funded capex to acquire land and investment peoperty. This will result in increased gearing and weakening earnings.

RAM may revert NAIM back to stable if it is able to replenish its order book, sustain its uptrend in unbilled sales and demonstrate robust improvements in its business and financial profile. A review will be done in the next three months from May 2012.

Naim has tendered for rm2 billion worth of jobs while the company’s order book as at end Dec 2011, stood at rm686 million.

The jewel in Naim’s crown is its 33.63% stake in Dayang.

Considering Naim owns a controlling block, there will be premium if divested.

There is negative pledge on the bonds, which means any assets Naim may seek to sell will require the approval of the bondholders. This is to ensure the proceeds goes towards redemption of the debt paper.

But Naim is unlikely to divest its interest in Dayang because the latter is the main contributor to the group’s earnings. This means if Dayang’s earnings contribution is removed, Naim’s core net profit will be very small, so what will the company do in the following years without Dayang?

Naim has goof land assets in East Malaysia .

As for the company tie up with KPJ Healthcare Bhd, that will also take time to bear fruit.

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Please note that all data given are merely blogger's opinion. It is strongly recommended that you do your own analysis and research before investing.