Benalec Holdings Bhd
(March 11, RM0.815)
Maintain buy with a target price of RM1.25: We maintain our “buy” call on Benalec Holdings with an unchanged fair value of RM1.25 per share, pegged at a 45% discount to its sum-of-parts value.

Benalec announced that the group has entered into three separate sales and purchase agreements (SPAs) with Arena Progresif Sdn Bhd for the disposal of land in Melaka.

The reclaimed land measures 70 acres (28ha), and is located approximately 9.5km south-west of the Melaka city centre. The said land parcels are for commercial usage. The total consideration for the land disposals amounts to RM129 million.

Based on the estimated net book value of about RM84 million, we expect Benalec to realise a net gain of RM34 million on the sale, which is set to be recognised in the financial year 2016 forecast (FY16F).

We make no changes to our earnings estimates as the latest land sale forms part of our land sale assumptions for FY16F.

Benalec’s increasing prospects in Melaka fortify its position as a provider of prime seafront land in the state, where there has been a pick-up in tourism-related activities over the years.

The monetisation of its land concession in Melaka, in turn, should provide more earnings support to the FY15F to FY16F net profit forecasts of RM48 million to RM50 million (FY14: RM33 million).

On our estimates, this new land deal will bump up the group’s total land sales with SPAs to RM523 million (about 287 acres) that are to be progressively recognised over the next three financial years.

Furthermore, we do not rule out the prospects of more concessions in Melaka going forward. The key rerating catalyst for Benalec remains with its aspirations to turn its concession in Tanjung Piai, Johor, into a future oil hub.

While securing the detailed environmental impact assessment approval would certainly provide more assurance of the project’s viability, the real challenge is to secure maiden off-takers during a period of declining oil prices. — AmResearch Sdn Bhd, March 11

This article first appeared in The Edge Financial Daily, on March 12, 2015.