Journey to Wealth
Benalec - Green lights from Johor State Govt
News Benalec announced that its 70% subsidiaries i.e. Spektrum Kukuh Sdn Bhd ('SKSB') and Spektrum Budi Sdn Bhd ('SBSB') had entered into a Development Agreement ('DA') with Johor State Government and the state authority to develop and reclaimed the land at Tanjung Piai and Pengerang respectively.
Comments This piece of news is positive to Benalec, as we believe this could be a prelude for further positive news in the near-term, especially for its Johor land reclamation project i.e. the approval of environmental impact study (EIA) and the offtaker agreement.
The DA has been signed with two conditions precedent ('CPs') i.e. (1) the completion of the hydraulic study and final survey of the project land and (2) getting the EIA approval.
The reclaimed land is 'leased' to Benalec's subsidiaries for 99 years. In return, Benalec will reserve 3% out of the gross proceeds of the land sale for the State government.
The management is expected to finalise the CPs by 1Q13. We opine that the contribution from the Johor land reclamation project will only materially contribute to its earnings in FY14 and we expect the development to take place in CY13.
Outlook The long-awaited progress on its Johor land project is bearing fruits and is expected to progress positively in the near-term (3 to 6 months).
Its Melaka land will provide further upside to the earnings as it rides on the appreciation in the land value.
Forecast No changes to our forecasts.
Rating MAINTAIN OUTPERFORM
No changes to our OUTPERFORM recommendation due to the huge potential upside to our Target Price.
Valuation Maintain our Target Price at RM1.81 based on SoP valuation.
Risks (1) An unsuccessful EIA and (2) an escalation in the material price.
Source: Kenanga
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