- Maintain BUY on Benalec Holdings, with an unchanged fair value
of RM2.48/share. A report by The Edge Weekly cited Benalec being confident of
striking a deal to develop the first 250 acres of prime seafront land within
the next few months in South Johor following the recent signing of a Development
Agreement (DA) with the Johor government.
- Benalec is reportedly in negotiations with several foreign
tank farm operators from the Middle East, Europe and China. In fact, Benalec
may accelerate reclamation works at its Tg.Piai landbank by 2H13 with 500 acres
– doubling that of its present target – if it secures two or three major offtakers.
- This latest news re-affirms our view that the latent value
of Benalec’s concessions in Johor is underappreciated.Firstly, the DA seals
Benalec’s exclusive rights to reclaim/ develop 5,485 acres of prime seafront
land in Tg.Piai and Pengerang into a future oil hub.
- Secondly, and significantly – there is already deep value attached
to Benalec’s highly-coveted DA. Just based on Benalec’s 2,000 acres of land in
Tg.Piai and a 25% discount to the market value of similar deals within this area,
the implied value attached to Benalec’s effective 70% entitlement rights in
Johor is already RM900mil (RM1.14/share).
- Thirdly, The Edge Weekly added that Benalec’s Pengerang landbank
may be included in RAPID’s masterplan. We agree, as together with Tg.Piai,
Benalec’s landbank – with good sea frontage and close proximity to Jurong – can
actually complement RAPID by providing storage space to support the massive
investments being lined up.
- Fourthly, Benalec is a cheaper entry to the repositioning
of South Johor as an emerging oil & gas hub. The stock is trading at only
7x-10x FY13F-15F PEs vs. the oil &
gas sector’s 18x. We forecast contributions from this segment to reach
~64% of group EBIT in FY14F-15F.
- Fifthly, Benalec has the balance sheet (FY13F net gearing:
0.1x) to embark on this massive project, which requires upfront payment from
buyers. Major shareholder in the Leaw family raised their stake in Benalec to
54.4% as at September 12 from 53.7% in May. This is backed by yields of
4.5%-6.3% on a minimum payout of ~30%.
Equally, there is scope for valuation upgrades as our forecast
only assumes 2,000 acres of reclaimed land sales in Tg.Piai. Benalec’s
reclamation model provides the ideal platform to add more value via multiple
channels as the development of its Johor landbank progresses (e.g. stakes in
the tank farms, leasing and marine/logistical support).
Source: AmeSecurities
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