- We maintain our BUY call on Benalec Holdings with an unchanged fair value of RM1.25/share, pegged at a 45% discount to its sum-of-parts value. Benalec recorded improved results for 1QFY15, with net profit surging to RM12mil from a RM5mil loss a year ago. Results were in line with expectations, constituting c.25% of our FY15F net profit forecast of RM48mil.

- The better results YoY was mainly due to higher land sales of RM45mil for its Malacca concessions that was booked in 1QFY15 compared with ~RM4mil in 1QFY14. For the quarter under review, the land sales generated substantial pre-tax margins of c.64%.

- Core earnings were up 21% QoQ on higher revenue base of RM48mil (+52% QoQ). The improved results were largely due to two key reasons:- (1) impairment charges on vessels and receivables totalling RM19mil that were incurred in 4QFY14; and (2) absence of land sales in 4QFY14.

- We take comfort that Benalec’s near-term earnings visibility has improved, thanks to c.RM312mil (173 acres) worth of land sales with SPAs that are to be recognised between FY15F and FY17F. The group has already secured buyers for its net entitlement of 158 acres at its DMDI concession in Kota Laksamana, Malacca.

- The resulting profits from the concession – sold to the Faithview Group and Ultra Harmoni respectively for a combined RM287mil – would however only be recognised upon completion of the land disposals. The land sale to Faithview (~30 acres) should be completed by 3QFY15, while it has reclaimed c.73 acres out of the 128 acres that is deliverable to Ultra Harmoni.

- Outstanding orderbook stands at ~RM450mil, including a RM203mil job that was recently awarded by the Boon Siew group in May.

- Benalec has recently submitted the Detailed Environmental Impact Assessment (DEIA) to the Department of Environment (DOE) for its Tg. PIai Integrated Petroleum & Petrochemical Hub and Maritime Industrial Park project in Johor (3,485 acres). This comes after it had submitted plans to raise RM200mil via convertible bonds.

- Approvals aside, we believe Benalec’s key re-rating catalyst still largely hinges on its ability to secure a trailblazer off-taker for its ambitious plans in Tg.Piai.

- Notably, the extended deadline to complete a proposed deal with 1MY Strategic Oil Terminal Sdn Bhd for 1,000 acres at Tg.Piai expires on 11 December 2014.

Source: AmeSecurities