- We maintain our BUY call on Benalec Holdings with an unchanged fair value of RM1.31/share, pegged at a 45% discount to its Sum-Of-Parts (SOP) value. Benalec returned to the black in 2QFY14 with a net profit of RM25mil, taking 1H earnings to RM21mil. As per previous quarters, the group did not declare any dividends.

- The turnaround in 2Q was largely driven by land sales. This translated to a pre-tax gain of RM32mil or pre-tax margin of 36%.

- Revenue from land reclamation activities doubled QoQ to RM15mil. Construction orderbook stands at ~RM250mil.

- In addition, the sequential improvements came from:- (i) deposits received from forfeiture of a land transaction (RM5mil); and (ii) discounts received from sub-contractors (RM4mil).

- The first half results constituted 60% of our full-year forecast, and only 46% of consensus. We are maintaining our FY14F net profit estimates of RM35mil.

- While we expect a slowdown in progress billings following the completion of certain jobs in FY13, earnings would be underpinned by RM182mil worth of land sales that are backed by SPAs. Profits from the disposals are likely to filter through over 2HFY14F and FY15F.

- With its shareholding issue all but resolved under a head of agreement, attention will gravitate towards Benalec’s ability to monetise the deep development potential of its concessions in Johor.

- Nevertheless, Benalec’s share price will likely be capped unless there is tangible news flow of the 1,000-acre land deal with 1MY Strategic Oil Terminal. The extended deadline to finalise the SPA is on 11 June 2014.

- In mitigation, Benalec is on the prowl for some cash jobs by leveraging on its forte as an integrated marine engineering specialist. Some prospective bids may emerge in Malacca and Penang.

- Tenders for reclamation works under Phase 1 of Eastern & Oriental’s STP2 project in Penang (384 acres) worth potentially over RM1bil could be called out once regulatory approvals are received by 1H 2014.

- With cash flow from the land sales, Benalec is in a net cash position to the tune of RM18mil as at 31 December 2013 vs. RM9mil six months ago.

Source: AmeSecurities