Benalec Holdings - Pot of gold within grasp BUY

- Maintain BUY on Benalec Holdings, with an unchanged sumof-parts- (SOP) derived fair value of RM2.48/share. Benalec reported 1QFY13 net profit of RM23mil – accounting for 24% of our full-year forecast but only 20% of the street’s.

- Despite a gain on disposal of land in Malacca recorded in 4QFY12, pre-tax earnings still rose 1.2x to RM26mil. The catalyst for the quarter came from two new projects that were kicked-off – namely Pulau Indah Industrial Park and TNB coal freight contract – although the Sentosa Cove project still accounted for the bulk of the group’s revenue at 73%.

- On a YoY basis, pre-tax profit fell 21% owing to the completion of certain projects last year – while contributions from the two new contracts mentioned above are still at its infancy stages. Further earnings drags came from:-  (i) preliminary expenses for its proposed marine/oil & gas hubs in South Johor; and (Ii) one-off disposal of vessels (RM2mil) during the quarter. 

- Be that as it may, we are comfortable with our FY13F net profit forecast of RM93mil (+13% YoY). We expect more prolific land sales from its Malacca concessions – where the group has just closed another deal that will likely be recognised next March (net gain of RM8mil).

- We estimate Benalec’s outstanding job flows at ~RM500mil. Thisprovides earnings clarity over the next four FYs with roughly 60% coming from Sentosa Cove. Any recognition from its 250-acre DMDI concession in Kota Laksamana would however only be captured under lump-sum land sales gains.

- Benalec recently declared a final single-tier DPS of 3 sen for FY12. This represented a doubling of its payout ratio to 30%, translating into a decent yield of 4%.

- We expect a significant re-rating to Benalec’s valuation if it successfully delivers investors for its proposed oil hub in South Johor (total: 5,485 acres) following the signing of a landmark development agreement in September. Poignantly, we are deeply encouraged that three potential offtakers are at the final investment decision stage.

- Just based on Phase 1 of its Tg.Piai landbank (2,000 acres), the value of its Johor concessions are already worth RM1.4bil or RM1.72/share – representing 69% of its SOP. 

- Benalec has the balance sheet to embark on its ambitious Johor project; with net cash position of RM59mil as at 30 September 2012. This includes an unutilised balance of RM46mil representing 48% of a private placement exercise carried out in 4Q11, for which the  group is seeking a one year extension (until 7 December 2013) to use it.   

Source: AmeSecurities