Journey to Wealth
Benalec - OUTPERFORM - 30 May 2012
News Benalec announced that it had been awarded a 3+2 years Contract of Affreightment for bulk coal from TNB Fuel Sdn Bhd, a wholly-owned subsidiary of Tenaga Nasional Berhad (TNB).
The contract is worth RM67.5m and the contribution to Benalec's revenue will be about RM22.7m per annum. The contract will commence from 1st May 2012 to 30th April 2015.
Comments We are positive with the new contract secured as it will mean more stable earnings for Benalec going forward. We also understand that Benalec is eyeing for more contracts from TNB following this contract award.
We expect Benalec to reap 40% and 20% gross and pre-tax profit margins respectively from this contract.
The contract award above is deemed to be in line with our assumption of new contract replenishments for its vessel and chartering business.
Outlook Management has indicated that they are experiencing some delays in wrapping up the recent land sale due to timing issues. The delay will potentially push the earnings recognition to FY13.
It is however likely that the transaction will be finalised in 3 to 6 months time from now.
Forecast We have trimmed our FY12 earnings lower by 27% ahead of its 3Q12 results announcement tomorrow as we have factored in the fact that earnings from the land sale will now be booked in only in FY13 (from the earlier expected FY12).
Rating MAINTAIN OUTPERFORM
There is still a huge potential upside for the stock to our Target Price.
Valuation We have reduced our TP to RM2.37 from RM2.70 previously due to delay in recognising the recent Melaka land sale. Our Target Price is derived from SOP valuation.
Risks Further delays in land sales (reclamation land)
Source: Kenanga
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