Maintain BUY on Benalec Holdings with an unchanged fair value
of RM2.85/share – based on the sum-of-parts methodology. Benalec unveiled
1HFY12 results which were largely in line with expectations – accounting for 52%-53%
of both consensus and our full-year estimates.
Net profit jumped 18% YoY on:- (i) a RM33mil gain on land sales
in Malacca that was booked in 2QFY12; and (ii) a significant 10.5ppt QoQ jump
in EBIT margin for its marine division (ex-land sales).
Benalec’s outstanding order book stands at approximately RM541mil
(~2.7x FY11 construction revenue), providing earnings visibility for the next
four years.
We continue to like Benalec for its exciting prospects as one
of the fast-emerging integrated marine engineering specialists in Malaysia and
the region.
A key re-rating catalyst comes in the form of the group’s exciting
foray in Johor, where it had in November secured agreement-in-principle
development rights to 5,245 acres of prime seafront land in South Johor.
The group is working hard to obtain the necessary approvals,
where its immediate focus will be on Tg.Piai – located on the south west of
Johor and just 17km away from Singapore’s vibrant petrochemical hub in
Jurong.
To be sure, Benalec has also signed an MoU with Singapore-based
Rotary engineering to co-develop an integrated petroleum storage facility on
250 acres of reclaimed land at
Tg.Piai.
Poignantly, Benalec is set to gain from multiple new earnings
streams via marine-related works and associated recurring income from the
ownership of this proposed oil terminal. We have assumed land sales of ~300
acres each for FY13F-14F.
Valuations remain compelling at FY12F-14F PEs of 5x-9x against
a robust EPS CAGR of 22% and supported by decent yields of 4%-9% on a targeted
payout ratio of ~30%.
Near-term prospects would be driven by: (i) cyrstallisation of
a further agreement with the Johor government; (ii) conversion of a formal SPA
with Rotary; and (iii) Securing off-takers to its prime Johor landbank.
In addition, the group is also actively bidding for more reclamation
jobs beyond Malacca – notably in Penang, Selangor and Singapore.
Source: AmeSecurities
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