- We maintain our BUY rating on Benalec Holdings with a fair value of RM1.31/share. This pegs the stock at a 45% discount to its estimated sum-of-parts (SOP) value.

- Benalec announced on Bursa Malaysia yesterday evening that the group’s 70%-owned unit, Spektrum Kukuh Sdn Bhd has mutually agreed to extend a binding term sheet with 1MY Strategic Oil Terminal Sdn Bhd for a further six months. The extended period will now take effect from 12 June 2014 until 11 December 2014.

- Recall that 1MY Strategic Oil Terminal was set up 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.

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

- We maintain our view that Tg.Piai’s investment merit remains largely intact. This is due to 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. Benalec’s total concession area in Johor is ~5,485 acres (Tg.Piai: 3,485 acres; Pengerang: 1,760 acres).

- Be it as it may, the group has to start delivering investors to monetise the deep development appeal of its highly coveted concessions in Johor.

- The delivery of a maiden offtaker will likely release the deeply-embedded value of Benalec and narrow the steep discount of 52% vis-a-vis its SOP.

- In the near term, Benalec’s prospects have taken on a positive trajectory. The group had last month, secured a RM204mil reclamation contract on a cash basis from the Oriental group.

- Together with recent land sales in Malacca, total contract value generated in recent months is close to RM600mil –providing earnings visibility over the next four financial years.

- The group is keeping an eye on several reclamation job prospects, including phase 2 of E&O’s Sri.Tanjung Pinang project in Penang.

- Benalec’s balance sheet remains healthy with a net cash position of RM22mil as at 31 March 2014.

Source: AmeSecurities