- Maintain BUY on Benalec Holdings with an unchanged fair value of RM1.31/share – a 45% discount to its sumof-parts (SOP value). Benalec reported a 1QFY14 net loss of RM5mil vs. a RM23mil gain in 1QFY13.

- But we are unperturbed and leave our FY14F net profit forecast of RM35mil unchanged as sequential momentum are tipped to improve on recognition of land sale gains via its concessions in Malacca.

- As previously flagged, the group reported a weak 1Q as it sank into the red for the first time since its IPO debut in January 2011. Apart from slower work progress during the Ramadan break, an earlier expected land deal in Malacca that was supposed to be booked in 1QFY14 would instead flow through in this coming quarter.

- On a positive note, Benalec has signed SPAs for 181 acres of land in Malacca worth c.RM254mil. The associated profits from these land deals would be progressively recognised in the subsequent quarters. The land sales were realised at average prices of RM28psf to RM30psf – in line with our estimates.

- Earnings aside, a key re-rating catalyst for Benalec lies with how fast it could monetise the embedded deep value of its Tg.Piai landbank. Management needs to start securing off-takers for Tg.Piai - earmarked as a budding oil hub due to its close proximity to Jurong’s petrochemical hub – before the stock (58% discount to SOP) can rerate, we believe.

- The deadline for a binding term sheet with 1MY Strategic Oil Terminal (earlier pushed back by six months) expires on 11 December 2013.

- Under the deal, the former is set to develop 1,000 acres of land as a strategic petroleum storage facility at Tg.Piai. Benalec’s role is to sell and subsequently reclaim the land for c.RM2bil, based on our estimates.

- We would not be surprised if negotiations are extended agai given the project’s sheer size (reportedly worth~RM21bil based on local press reports) and complexity.

- Nevertheless, Tg.Piai’s investment merit remains largely intact. Furthermore, management is proactively working beyond the 1MY deal to secure more investors to develop Tg.Piai, whilst being on the look-out for more cash jobs/concessions.

Source: AmeSecurities