- Maintain BUY on Benalec Holdings with an unchanged fair value of RM1.31/share – a 45% discount to its estimated sum-of-parts value. Benalec reported a net profit of RM2mil in 2QFY14, taking 9MFY14 earnings to RM23mil. No dividends were declared during the current quarter.

- While its results accounted for only 65% of our full-year forecast (consensus: 55%), sequential earnings momentum should pick up in the coming quarters on recognition of land sales and a recent cash contract secured earlier this month.

- Benalec’s 9M earnings was down by 58% YoY, mainly on account of the completion of some of its projects in Malacca.

- Similarly, sequential earnings fell by 91% QoQ due to lower recognition of land sales of RM66mil in 3QFY14 vs. RM88mil in 2QFY14.

- In addition, there was a gain of around RM9mil booked in during the preceding quarter arising from:- (i) deposits received from forfeited land disposal transactions; and (ii) discounts received from sub-contractors.

- We expect Benalec’s earnings momentum to improve in the coming quarters as we move into FY15F-16F.

- Our growing optimism is anchored by a resurgence in contract flows, with approximately RM593mil worth of revenue streams to be recognised over the next four FYs, namely:- (i) Some 213 acres of reclaimed land in Malacca (with SPAs already signed) that will generate total revenues of RM390mil; and

(ii) A RM203mil land reclamation contract (on a cash basis), also in Malacca, that was secured from the Oriental Group earlier this month.

- The recent deals may be a precursor to more prolific land deals, given Benalec’s status as one of the largest concession holders of prime sea-fronting land in Malacca.

- We also would not preclude the possibility of the group bidding for several reclamation contracts in Malaysia, including Phase 2 of E&O’s Sri Tanjung Pinang (STP) project in Penang. All said, the key to a stronger re-rating lies with Benalec’s ability to monetise the deep development potential of its Johor conce

Source: AmeSecurities