News Benalec announced that its 70% subsidiaries
i.e. Spektrum Kukuh Sdn Bhd (“SKSB”) and Spektrum Budi Sdn Bhd (“SBSB”) had
entered into a Development Agreement (“DA”) with Johor State Government and the
state authority to develop and reclaimed the land at Tanjung Piai and Pengerang
respectively.
Comments This piece of news is positive to Benalec, as
we believe this could be a prelude for further positive news in the near-term,
especially for its Johor land reclamation project i.e. the approval of environmental
impact study (EIA) and the offtaker agreement.
The DA has been signed with two conditions precedent
(“CPs”) i.e. (1) the completion of the hydraulic study and final survey of the
project land and (2) getting the EIA approval.
The reclaimed land is “leased” to Benalec’s subsidiaries
for 99 years. In return, Benalec will reserve 3% out of the gross proceeds of
the land sale for the State government.
The management is expected to finalise the CPs
by 1Q13. We opine that the contribution from the Johor land reclamation project
will only materially contribute to its earnings in FY14 and we expect the development
to take place in CY13.
Outlook The long-awaited progress on its Johor land project
is bearing fruits and is expected to progress positively in the near-term (3 to
6 months).
Its Melaka land will provide further upside to
the earnings as it rides on the appreciation in the land value.
Forecast No changes to our forecasts.
Rating
MAINTAIN OUTPERFORM
No changes to our OUTPERFORM recommendation
due to the huge potential upside to our Target Price.
Valuation Maintain our Target Price at RM1.81 based on SoP
valuation.
Risks (1) An unsuccessful EIA and (2) an escalation
in the material price.
Source: Kenanga
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