Period  2Q14 / 1H14

Actual vs. Expectations Benalec Holdings (BENALEC) reported its 1H14 sets of results last Friday, registering net profit of RM20.7m that we deem inline with our estimates but below consensus expectations. The 1H14’s net profit makes up 55% of our estimates but only 39% of consensus full-year estimates.

 We believe that the earnings fell short of consensus largely due to lower-than-expected land sale contribution from Melaka.

Dividends  No dividend was recommended for the quarter, as expected.

Key Results Highlights In 1H14, BENALEC’s net earnings took a dive by 53% from RM43.9m to RM20.7m on the back of weaker revenue which dropped 12% to RM109.5m due to lesser work progress being recognised. However, its other income saw a huge increase to RM10.3m (+572%) largely due to deposit received from forfeited land disposal transactions.

 QoQ, BENALEC saw a strong recovery on its earnings from a loss of RM4.7m to a net profit of RM25.3m in 2Q14 underpinned by a strong growth in revenue (+560%). The significant improvement in its revenue was primarily due some land disposal deal being recognised in 2Q14 vis-à-vis no land disposal in 1Q14.

Outlook  As expected, BENALEC’s short-term performance was dampened due to lack of land sale transactions. However, its long-term outlook remains intact due to the attractive sea fronting land concession in Johor, which is expected to start contributing to the group from FY15 onwards, albeit in a gradual manner.

Change to Forecasts No change to our earnings estimates.

Rating Maintain OUTPERFORM

Valuation  Maintaining our SoP based TP at RM1.25, at this juncture.

Risks to Our Call Sharp increase in raw material prices.

 Failure in obtaining Environmental Impact

Assessment for its Johor project.

Source: Kenanga