Benalec - Par for the course BUY

- We maintain our BUY recommendation on Benalec Holdings with an unchanged sum-of-parts-derived fair value of RM2.48/share.

- Benalec’s 1HFY13 earnings came in at 47% of our full-year forecast, and 43% of consensus. We deem the results to be in-line with expectations.

- At half-time, net profit fell 24% YoY largely due to the recognition of a RM34mil gain from land sale that was recorded in 2QFY12. Excluding this, Benalec’s earnings would have seen an 82% jump YoY.

- Construction revenue surged 42% YoY with new contributions coming in from the Pulau Indah and Swiss Horizon contracts. The bulk of the revenue came from the existing Sentosa Cove reclamation contract at Kota Laksamana, Malacca.

- Benalec’s outstanding order book currently stands at RM385mil, which will keep the group busy for the next three years (2.6x FY12 construction revenue). New contract bids include the upcoming Kuantan Port expansion that was unveiled last month.

- Secondly, we expect Benalec to monetise more value via two strategic land sales of its landbank in Malacca that will likely filter through towards the second half of FY13. These would include the sale of 80 acres of land near Kota Laksamana that will help the group reap an estimated net gain of RM27mil.

- Benalec’s balance sheet remains strong. As at 31 December 2012, the group is sitting on a healthy net cash pile of RM42mil. A further RM97mil is set to flow in from the land sale mentioned above.

- Following the sale, Benalec has approximately 121 acres of land within its Malacca concessions with roughly another 500 acres yet to be reclaimed.

- But, the real event-driver for Benalec lies with deal-making capabilities in harnessing value from its highly-coveted concession in Johor totalling 5,485 acres. Just based on Phase 1 of its Tg.Piai landbank (2,000 acres), the value of its Johor concessions is already worth RM1.4bil or RM1.72/share (69% of its SOP).

- The delivery of a maiden offtaker will likely release the deep-embedded value of Benalec and narrow the steep discount of 52% viz-a-viz its SOP. Its decent yield of 4%- 6% (on a minimum payout of 30%) provides further share price support.

Source: AmeSecurities