NAIM Fundamentals Suggest Deep Value

Company Background

An investment holding company, operates in the property development and construction businesses in Malaysia and Fiji. The company is divided into three segments: Property Development, Construction, and Others.

The Property Development segment is responsible for developing and constructing residential and commercial properties, as well as selling vacant land.

The Construction segment focuses on constructing various infrastructure and engineering works, including buildings, roads, bridges, and oil and gas-related construction projects.

The Others segment encompasses a wide range of activities, such as manufacturing and selling buildings and construction materials, providing sand extraction and land filling services, property investment and management, hotel and quarry operations, dam construction, flood mitigation projects, government camps and complexes, mass rapid transit systems, museums and galleries, residential, commercial, and industrial properties, recreational facilities, resettlement schemes, highways, education establishments, transmission lines, and water pipelines. Additionally, the company provides civil, building, and earthworks contracting services and property management services.

Furthermore, Naim Holdings Berhad engages in the trading of construction materials and offers management services. The company was incorporated in 1993 and is headquartered in Kuching, Malaysia.

Investment Thesis

1. Deep Value Opportunity with High Shareholder Yield

• Naim trades at a low P/E of 2.0x.
• Its share price is currently at 53% of its 52-week high.
• The stock has a -40.2% one-year return.
• The company generated a shareholder yield of 21.3%.
• This suggests significant capital return to shareholders.
• The return may be via buybacks or capital restructuring.

2. Strong Earnings and Cash Flow in Latest Cycle

• Naim reported RM 222.2 million in net income for the trailing twelve months.
• The company also reported free cash flow of RM 182 million.
• Despite revenue volatility and a soft first quarter of 2025, Naim’s net profit margin was 48.3%.

The company’s ROE was 14.4%, which highlights its operational efficiency.

3. Net Cash Balance Sheet and Financial Flexibility

• Naim holds more cash (RM 370 million) than total debt (RM 92 million).
• This makes Naim one of the few Malaysian contractors with a net cash position.
• A strong balance sheet health allows Naim to weather downturns or bid aggressively on public infrastructure tenders.

Peer Comparison (WCT, GADANG & EDGENTA)

1. Valuation Discount:
   • NAIM trades at a P/E of 2.0x, the lowest among peers (Peer Average : 5.4x), signaling deep value or severe market skepticism regarding its earnings sustainability or quality.
   • By comparison, WCT, Gadang, and Edgenta are trading at more than double NAIM’s valuation multiples, with Edgenta at the upper end (8x).
2. Market Cap Context:
   • NAIM’s market cap is also the smallest among the peer set, which may reflect liquidity constraints, limited institutional interest, or structural business risks.
   • Peer companies have higher visibility and possibly more diversified operations or more stable earnings outlooks.
3. Stock Performance:
   • NAIM’s -40.2% 1Y return drastically underperforms the group, with Gadang and WCT posting modest declines and Edgenta delivering a positive return.
   • This sharp underperformance, combined with the low P/E, could suggest either:
     • Market pricing in earnings deterioration, governance issues, or balance sheet risks, or
     • A deep value opportunity if earnings are sustainable and the discount is unwarranted.

• Peer companies like Edgenta may be commanding premium valuations due to defensive earnings, higher return on equity (ROE), or better ESG positioning.

Risks & Concerns

• Volatile earnings: Quarterly fluctuations in revenue and net income (e.g., small net loss in Q1 2025) suggest earnings are lumpy and project-driven.
• Lack of dividend visibility: The firm has not paid dividends in recent periods, which limits its appeal for yield-focused investors.
• Limited analyst coverage and low trading volume may contribute to valuation gaps or muted investor interest.

Valuation & Recommendation

While Naim’s fundamentals suggest deep value, the lack of consistent profitability and strategic uncertainty warrant caution. Investors with a high-risk tolerance may consider exposure at current levels, while others may prefer to await clearer visibility on orderbook catalysts or dividend reinstatement.

Recommendation: BUY

• 12-Month Fair Value: RM 1.32 (Upside ~27%)
• Upside Triggers:
  • Infrastructure contract wins
  • Dividend reinstatement
  • Strategic asset unlocks.