News    Yesterday, Benalec made a Bursa announcement that they had come to an agreement with the State Secretary, Johor (Incorporated) (“S.S.I.”) and 1MY Strategic Oil Terminal Sdn. Bhd (“the Purchaser”) to extend the period of validity of the term sheet for an additional duration of six (6) months from the expiry date to finalise the terms and conditions of the Sale and Purchase Agreement (“SPA”). 

The extended duration shall come into effect from 12 June 2013 until 11 December 2013.

Comments    We are not surprised with the extension of time for the term sheet as we suspected that the initial three months time was too short for both parties to conclude SPA given that the condition precedent on Environmental Impact Assessment (“EIA”) studies have yet to be fulfilled. 

Based on the Department of Environment’s info, the whole EIA review process would take up to a total of 21 weeks whereby the period allocated for a review of a Preliminary EIA (PEIA) report is 5 weeks, Terms of Reference (TOR) for the preparation of Detailed EIA Report is 4 weeks while that for a Detailed EIA (DEIA) report is 12 weeks. 

Hence, we do take some comfort given that the purchaser is willing to give an extension of time for another six months in order to allow Benalec to expedite the EIA studies in order to fulfil the condition precedent to conclude the SPA. 

Outlook   We still believe that the long term prospect remains intact for Benalec given that they are likely to benefit from the development of its Johor land due to the sharp increase in land prices in that region.

Forecast   No changes to our earnings estimate.

Rating   Maintain OUTPERFORM

Valuation    We are keeping our TP of RM2.08 based on SOP unchanged at this juncture as our assumption for its Johor project is still fairly conservative.

Risks   Further delays on its EIA

Sharp increase in material prices

Source: Kenanga