- Maintain BUY on Benalec Holdings with an unchanged fair value of RM1.31/share – a 45% discount to its sumof-parts (SOP value). Benalec announced that it has extended the deadline for a binding term sheet with 1MY Strategic Oil Terminal Sdn Bhd and The State Secretary Johor Inc for a further six months to 11 June 2014.

- Recap that under the deal, 1MY Strategic Oil Terminal 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.

- This is the second extension to the deal in order for all parties to finalise the terms of a Sale & Purchase Agreement (SPA).

- We are not surprised by this news. We had highlighted previously that negotiations are expected to be protracted, given the project’s sheer size (reportedly worth ~RM21bil based on local press reports) and complexity.

- But, Tg.Piai’s investment merit remains largely intact given its close proximity to Jurong’s vibrant petrochemical hub in Singapore, where a large number of oil & gas MNCs are already operating.

- Furthermore, management is proactively working beyond the 1MY deal to secure more investors to develop Tg.Piai, whilst being on the lookout for more cash jobs/concessions.

- Notably, job prospects for reclamation works over at Penang are perking up, including the massive STP development by E&O (worth over RM1bil on our estimates).

- On another note, Benalec also announced that it has terminated a land deal with Highbond Capital & Gigayear Revenue after the latter had failed to pay the balance purchase price of RM49mil on 10 December 2013.

- Nevertheless, we estimate that Benalec still has c.RM200mil worth of land deals that have been consummated, and are likely to be progressively recognized over the subsequent quarters.

- 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.

Source: AmeSecurities