News    Benalec announced that it proposed to dispose 16 parcels of land in Melaka measuring 79 acres at RM97m to Ocean Cove Development Sdn Bhd (OCDSB). Note that this transaction will be a Related Party Transaction (RPT) as the director of OCDSB is connected to Benalec's director and main shareholder, Dato' Leaw Seng Hai via Oceancove. 

Comments   Potential profit on the land sale. The sale will be made via the Benalec's subsidiaries under Benalec Sdn Bhd, i.e. Oceanview Project Sdn Bhd (OPSB), Oceanview Realty Sdn Bhd (ORSB) and Heritage Property Sdn Bhd (HLSB). The sale price of RM97m translated to RM28 per sft. The book value of the land stood at RM60m or RM17 per sft as at 30 June 2012. Hence, Benalec is expected to record RM36m in profit on this land disposal transaction.    

 Proper governance in place. Despite it being a RPT transaction, we are not entirely negative on this transaction due to the selling price of RM28 per sft being considered fair in our view as it is in line with the last transacted price for its Melaka land. In addition to the above, we note that the price consideration will also be satisfied fully in cash. 

 Utilisation of proceeds (see table on the next page). The utilisation of the proceeds (57%) is mainly for its current and future projects' working capital requirement. On top of that, 30% of will be used as part payment for its vessel purchase from the directors during its pre-IPO time. The vessels cost c.RM140m. Benalec has also reserved about RM12m to pare down its debts. Its gearing is expected to be reduced from 0.09x to 0.07x. 

Outlook   Benalec's balance sheet is in a good position to support its rollout new projects due to there being ample cash for its working capital requirements. 

 Its Johor land development is expected to be an exciting boost in the near term as Benalec is finalising the EIA and further approvals from the state's agencies. 

Forecast   There is no change to our forecast as the transacted land value is within our expectation.

Rating     MAINTAIN OUTPERFORM

 Further development of its Johor land will be its next catalytic factor.

Valuation    Our TP of RM1.71 is maintained, based on SOP valuation.

Risks   (1) Unsuccessful EIA study and (2) escalation in its material prices.

Source: Kenanga