Benalec Holdings - Agreement sealed; now for the big push! Buy

- Maintain BUY on Benalec Holdings, with an unchanged fair value of RM2.48/share. Benalec has announced that its 70%-owned units – Spektrum Budi and Spektrum Kukuh – have each signed development agreements with the Johor government and State Secretary Inc (SSI). 

- Benalec will have exclusive rights to reclaim and develop two large tracts of prime seafront land in Johor – at Tg.Piai (3,485 acres) and Pengerang (1,760 acres) – that is earmarked as an integrated petroleum & petrochemical logistic hub and maritime industrial park.

- The land rights are for 99 years for each parcel. In return, the Johor government would be entitled to 3% of gross proceeds from the said land.  

- The next step is for Benalec to finalise the:- (i) hydraulic studies/final survey of project land; and (ii) obtain EIA approval before any construction works can start.

- Benalec’s near-term focus would be in Tg.Piai (three phases) – strategically located along the straits of Malacca and diagonally across the vibrant petrochemical hub in Jurong, Singapore.

- Significantly, the agreement would solidify Benalec’s intensifying efforts to secure off-takers for its muchcoveted land. 

- Already, Benalec has an ongoing MoU with Singapore’s Rotary Engineering Ltd to co-develop an integrated petroleum storage facility for storing, blending and distributing crude oil and its derivatives on 250 acres of reclaimed land at Tg.Piai (capacity: up to 3 mil tonnes).    

- Benalec is an early-stage play on the repositioning of south Johor as an emerging oil & gas hub. Valuations are attractive at FD FY12F-14F PEs of only 7x-10x when stacked against its deeply-embedded value.

- Our model is only anchored on land reclamation works on 2,000 acres in Tg.Piai, with maiden contributions to kick in by 4QFY13. This suggests more upside to Benalec’s future earnings potential. 

- Benalec’s balance sheet remains strong at FY13F net gearing of 0.1x, and supported by dividend yields of 4%-6%. To kick-start its Johor project, we understand that the group is planning to raise ~RM100mil in borrowings.

- Ex-Johor, we value Benalec’s other businesses – notably its Malacca concession and the TNB coal supply contract – at close to RM0.80/share. However, this does not include future land sales from its Malacca landbank that has yet to be reclaimed.  

Source: AmeSecurities