-  We maintain our BUY call on Benalec Holdings with a revised fair value of RM1.25/share (from RM1.31/share previously) with an unchanged discount of 45% to its revised sum-of-parts value on lowered earnings, as we roll-forward our valuation base to FY15F.

-  Our lower fair value mainly incorporates:- (i) lower target PE multiple assigned to its construction earnings (from 12x to 8x); (ii) higher discount rate assigned to its vessel charter (from 8% to 12%); and (iii) more moderate margin assumptions. This reflects the continued delays in the commercialisation of its Johor land concession as the operating environment remains fairly challenging.

-  Stripping off exceptional items, Benalec reported a core net profit of RM33mil (-46% YoY) on the back of RM211mil in revenue on slower construction progress and lack of new job flows for much of FY14. This was largely in line with our estimates. The one-off items relates to:- (i) impairment charge for its vessels (~RM16mil); and (ii) reversal of a RM9mil gain on land sale from an earlier related party transaction. To our surprise, the group has yet to declare any dividends for FY14.

-  Positively, Benalec’s contract momentum continues to be on an upturn. The group is set to receive c.RM360mil from three land sales with SPAs that will likely be recognised over the next three years.

-  The three land sales from its Malacca concessions highlighted above were transacted at average land prices of c.RM40psf-RM48psf. This suggests some upside to our maintained average pricing of RM28psf for some 400 acres of land inventory that Benalec can sell.

-  On top of that, Benalec managed to snag another repeat contract in Malacca worth c.RM204mil from the Oriental Group last May, where the payments are in cash. Similarly, the group appears to be ramping up efforts to secure more land sales in Malacca while eyeing more reclamation concessions within the state.

-  All said, Benalec’s key re-rating angle still largely hinges on its ability to monetise the deep development potential of its Johor concessions. All eyes will be on its protracted negotiations with 1MY Strategic Oil Terminal Sdn Bhd, which will lapse on 11 December following three rounds of extensions.

-  We have conservatively shifted maiden contributions from its Johor concessions from FY15F to FY16F. But, our current assumptions only reflect 3,000 acres of its Tg.Piai concession. For the record, Benalec has development rights to reclaim sea-fronting land totalling 5,245 acres (Tg.Piai: 3,485 acres; Pengerang: 1,760 acres) in South Johor as a future oil hub.

Source: AmeSecurities