Benelac Holdings - Step by step Buy

- Maintain BUY on Benalec Holdings, with our sum-of-parts (SOP) derived fair value lowered slightly to RM2.48/share (previously: RM2.51/share) – as we roll forward our valuation base to FY13F. 

- Benalec reported 4QFY12 net profit of RM11mil, bringing FY12F core net profit to RM83mil. Its results were largely within expectations. 

- Stripping off a RM6mil gain from the bargain purchase of subsidiaries acquired in the previous financial year, FY12 core net profit shed 8% YoY on:- (i) timing issues  for ongoing construction jobs/recognition of land sales at its Malacca concessions; and (ii) one-off ESOS expenses totalling RM2mil during the financial year; and (iii) preliminary expenses for its future ventures in Johor.   

- But, we forecast a turnaround in FY13F core earnings (+13% YoY; FY12: -8% YoY). This would be mainly underpinned by a step-up in recognition from three key projects: (i) DMDI land in Kota Laksamana, Malacca  (ii) Pulai Indah Industrial Park, Selangor; and (iii) RM67milfreight contract to carry coal for TNB.

- The latest contract (3 years + option for another 2 years) that commenced last May adds another dimension to Benalec’s expanding capabilities via recurring charter income from TNB. 

- Benalec’s has built up a healthy order book buffer of RM561mil (~2x construction revenue) that would provide earnings visibility until 2016.

- But, the real beef with Benalec largely hinges on its pursuit to seal a formal mandate to develop a maritime industrial park in South Johor – strategically located in close proximity to Singapore. We expect maiden contributions from Johor to start channelling-in from 4QFY13 onwards.   

- Benalec’s cash balance remains healthy with FY13F net gearing at only 0.1x, suggesting ample room to gear up for future value-accretive deals – notably in Johor. To kick start its Johor ventures, we understand that the group is planning to raise ~RM100mil in borrowings.   

- Forward valuations remain attractive at FY13F-15F FD EPS of 7x-10x against robust EPS CAGR of 16%. Our forecast only assumes land reclamation works for Phase 1& 2 of its Tg.Piai landbank in Johor (2,000 acres) – implying more upside to its future valuation upon contract delivery.    

Source: AmeSecurities