- We maintain our BUY call on Benalec Holdings with a lower fair value of RM1.15/share (previous: RM1.25/share), at an unchanged 55% discount to its revised sum-of-parts (SOP) estimate. This reflects timing delays in land sales and higher operational cost for certain concessions, which culminated in a weaker 3QFY15.

- In line with this, we have reduced our margin assumptions. YoY, 9MFY15 pre-tax margins for the marine construction division had halved to c.10% on higher operating costs, although this should reverse in the coming quarters when more land sales kick-in.

- To be sure, Benalec has RM523mil in land sales with SPAs (287 acres) that are awaiting the issuance of land titles. While there could still be some recognition in 4QFY15, the bulk of land sales will likely be recognised only in FY16F-17F.

- Benalec appears to be making operational progress on its proposed Tg. Piai Integrated Petroleum and Maritime Industrial Park (TPIPMIP).

- In the middle of last month, the group – via wholly-owned unit Tg. Piai Maritime Industries – signed a MoU with the Pestech group to explore a potential tie-up for the supply of power infrastructure.

- Discussions between both parties are ongoing to form a definitive contract within six months from the MoU.

- At the same time, we expect the group to commence initial reclamation works on 100-200 acres of land at TPIPMIP.

- As part of its funding program, the group recently completed the issuance of RM200mil worth of convertible bonds.

- TPIPMIP’s potential to grow into a future oil hub remains largely intact, in our view. From our discussions with industry players, demand for storage facilities is expected to remain bright as the current oil market presents an opportune time for oil traders to lock in at low prices.

- Hence, Benalec’s prospects hinge on the management’s ability to secure its first maiden off-taker.

- The deadline for negotiations with 1MYStrategic Oil Terminal is on the 11th of next month.

Source: AmeSecurities Research - 28 May 2015