News  Yesterday, Benalec announced that it has proposed a HoA ratification between the Company and Datuk Leaw Tua Choon, Datuk Leaw Ah Chye, Leaw Yongen to set out the “Global Settlement” of all legal suits, disputes and claims between the Group and the aforesaid parties. The Global Settlement requires Datuk Leaw Tua Choon and Datuk Leaw Ah Chye to procure Sunshine 2000 and Seaside Synergy (the purchasers of a piece of 23 acres land in Melaka at RM28.1m) to consent to the rescission and cancellation of the Land SPAs. Hence, the titles of the land will be restored to Benalec and the purchase monies shall be refunded to Sunshine 2000 and Seaside Synergy.

 After the land title were duly restored to Benalec on 19^th February 2014, Benalec had yesterday entered into another SPA for the sale of the same land to another purchaser, Teobros Development Sdn Bhd (TDSB) with an even higher price of RM48.1m.

 Comments  We are POSITIVE with this development as the land size of 23 acres is within our land sale assumption for FY14 of 160 acres. To date, Benalec has managed to record 124 acres of land sales at an average price of RM39.2/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.

 This land sale of 23 acres at RM48.1m translates to a sale price of RM48 psf which is 20% higher compared to its previous land sale price of RM40 psf. The book value of the land stood at only RM16m or RM16 psf which is far lower than that of a previous land sale’s book value of RM24 psf. Hence, Benalec will record an additional gain of RM14.7m from this particular land disposal.

 We also concur with the management that the HoA provides Benalec with all the reliefs sought after in the various legal suits filed by Benalec. With the HoA, it would avoid inherent complications, uncertainties, unnecessary time and resources spent as well as unproductive efforts expended, in a long drawn-out litigation, especially when it involves former directors and substantial shareholders.

Outlook  Although its performance would likely be dampened in the short-term due to certain changes on its land sale method and slower progress on its marine construction, its long-term outlook remains intact due to the attractive sea-fronting land concession in Johor, which is expected to start contributions from FY15 onwards, albeit in a gradual manner.

Forecast  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