News  Yesterday, Benalec announced that its wholly-owned subsidiary Heritage Land Realty Sdn. Bhd. has entered into a Sale and Purchase Agreement with Faithview Supreme Development Sdn. Bhd. to dispose eight (8) pieces of leasehold vacant land held under Plot A - H located Kawasan Bandar VI, Daerah Melaka Tengah, Melaka measuring approximately 29.54 acres for a total sale consideration of RM51.5m cash.

Comments  We are neutral with this sale as the land size of 29.54 acres is within our land sale assumption for FY14 of 160 acres. To date, Benalec managed to record 101 acres of land sales at an average price of RM35.6/sq ft versus our assumption of RM31/sq ft. However, its average land cost of RM26/sq ft is still higher than our assumption of RM25/sq ft.

 The 29.54 acres of land sale at RM51.5m translates to a sale price of RM40 psf which is 3% higher compared to its previous land sale price of RM39 psf. The book value of the land, however, stood at RM30.8m or RM24 psf which is 17% lower as compared to the previous land sale’s book value. Hence, Benalec is expecting to record a better gain of RM15.5m from this particular land disposal as compared to previous land sales which only recorded a net gain of RM9m.

Outlook  We are positive with Benalec’s active land sale trend in Melaka and also the disciplinary action taken on both of its executive directors. However, we are still waiting for more positive development on its Johor land reclamation project, which is pending approval for its Environmental Impact Assessment (EIA) studies, and we hope that Benalec would be able to conclude its Johor project before the expiration on the extension of time on 11th Dec 2013.

Forecast  No changes to our earnings estimate.

Rating Maintain OUTPERFORM

  We continue to maintain our OUTPERFORM call on Benalec, given that they could still possibly benefit from the development of its Johor project in Tanjung Piai, while expecting more land sale in Melaka.

Valuation  Our SOP-based Target Price of RM1.94 is maintained at this juncture.

Risks to Our Call  Further delays on the EIA studies for its Johor project

 Sharp increases in material prices 

Source: Kenanga