-  We maintain BUY on Benalec Holdings with an unchanged sum-of-parts-(SOP) derived fair value of RM2.48/share. Benalec reported 3QFY13 net profit of RM10mil, taking 9MFY13 earnings to RM54mil. As expected, no dividends were declared during the quarter under review.

-  9MFY13 earnings dipped 24% YoY as there was a RM34mil gain from land sale that was recorded in 2QFY12. Stripping this out, Benalec’s earnings would have risen by 45% YoY.

-  We foresee a pick-up in earnings for 4QFY13, if the strategic disposal of two pieces of landbank concession in Malacca (80 acres) for a net gain of RM27mil, materialises as expected.

-  Construction billings rose 6% YoY largely on increased work pace on the Sentosacove project (RM31mil more in 3QFY13 compared with a year ago).

-  Benalec’s outstanding order book currently stands at ~RM314mil, sufficient to keep the group busy over the next three years (2.1x FY12 construction revenue).

-  The group continues to be on the look-out for reclamation contracts. Job prospects may include the upcoming Kuantan Port Expansion, Iskandar Malaysia and Penang.

-  The main focus for Benalec going forward is on its ability to commercialize 5,485 acres of prime seafront land in South Johor.

-  The group had on March 12 – signed a binding term sheet with 1MY Strategic Oil Terminal Sdn Bhd and The State Secretary Inc (S.S.I.) for the sale and reclamation of 1,000 acres of land in Tg.Piai, Johor.

-  Under the deal, a formal SPA is to be executed within three months subject to finalisation of all the details. This follows an earlier report in The Star detailing a planned JV between the Abu Dhabi government and 1MY.

-  This deal is significant for its strategic importance as a trailblazer offtaker for Tg.Piai’s rising prospects as a future oil hub. This will likely trigger more interest from other foreign oil MNCs to invest in Benalec’s land concessions in Tg. Piai, and also Pengerang.

-  Notably, our current valuation only includes the first 2,000 acres of its land at Tg. Piai. A formalisation of this deal would help narrow the stock’s steep 44% discount to its NAV, paving the way for Benalec’s emergence as a cheaper leverage to the oil & gas sector (FY13F-15F PEs of only 9x-12x).

Source: AmSecurities