KUALA LUMPUR: Benalec Holdings Bhd may finally get approval from the Department of Environment (DoE) to commence land reclamation for its Tanjung Piai Integrated Petroleum & Petrochemical Hub project, following the greenlight the department gave for the neighbouring controversial Forest City development on Jan 14.
The reclamation works will be carried out by Benalec’s (fundamental: 1.65; valuation: 1.80) 70%-owned unit Spektrum Kukuh Sdn Bhd, which also has the Johor royal family as a shareholder, with the crown prince of Johor Tunku Ismail Idris Sultan Ibrahim as one of its directors.
The Tanjung Piai project is located off Tanjung Piai, Johor, close to Jurong Island, Singapore, and will be built on reclaimed land measuring over 3,485 acres (1,410.33ha).
Benalec has already secured an offtaker for 404.69ha of the project, according to filings with Bursa Malaysia. Spektrum Kukuh entered into a binding term sheet with the State Secretary, Johor (Inc), and 1MY Strategic Oil Terminal Sdn Bhd in March 2013 to undertake reclamation works and the sale of about 404.69ha off the coast of Tanjung Piai.
Benalec is not involved in the Forest City project, but the DoE approval granted for Forest City last Wednesday has sparked optimism about Benalec’s Tanjung Piai project and caused its shares to surge the following day by as much as 6.25% before easing to close at 66.5 sen, up 2.5 sen.
Forest City’s master developer is Country Garden Pacific View Sdn Bhd — a joint venture between Chinese developer Country Garden Holdings Ltd and Esplanade Danga 88 Sdn Bhd, in which the Sultan of Johor, Sultan Ibrahim, has a stake.
“The developer of Forest City submitted its DEIA (detailed environmental impact assessment) about two weeks ahead of Benalec. It is possible that Tanjung Piai could be approved within the next week or two,” said an analyst.
Meanwhile, Benalec chief operating officer Bernard Boey told The Edge Financial Daily that the group is still waiting for DoE’s decision.
“When we submitted the DEIA for approval, there was a time charter that certain things needed to come up during the period. Based on that, we have a timeline of within the first quarter of the year,” he said.
Kenanga Investment Bank Bhd analyst Iqbal Zainal said the DEIA approval and the sale of the reclaimed land to 1MY will be the “ultimate catalyst” for the stock.
“Selling the 1,000-acre land for RM60 per sq ft would translate into about RM2 billion, which is a substantial amount. However, Benalec has not inked a proper contract with 1MY and is still in discussions on the sale of the land,” he noted.
Even without Tanjung Piai, Iqbal said the group will be able to sustain itself over the next one to two years as it still has a land bank of approximately 161.87ha of reclaimed land.
Kenanga has an “outperform” call on Benalec, with a revised target price of 83 sen (previously RM1.25).
Similarly, Ong Keng Wee, analyst at AffinHwang Investment Bank Bhd, said the DEIA approval will significantly enhance profit forecasts and valuation for the marine construction services provider.
“Based on a selling price of RM50 per sq ft for the initial 1,000 acres, which will rise to RM75 psf for the remaining 2,485 acres, as well as a conservative net profit margin of 10%, the Tanjung Piai concession will generate approximately RM10 billion in billings and RM1 billion in net profit over the next 10 to 15 years,” said Ong.
As at Dec 31, AffinHwang had a “buy” call on Benalec, with a target price of 56.5 sen.
This article first appeared in The Edge Financial Daily, on January 19, 2015.