News  Hot on the heels of an earlier land sale (see our report dated 14th March 2014), Benalec announced that it is selling 22 pieces of commercial land measuring 128.5 acres that have been or will be reclaimed in Melaka for RM235.1m to Ultra Harmony Development Sdn Bhd (UHDSB).

 The sale considerationl will be satisfied entirely in cash upon completion of the reclamation works and issuance of land title. A ten percent deposit had already been paid by UHDSB upon signing of the SPA, while the remaining balance of the disposal will be paid progressively in four stages for the next two years throughout the completion of the reclamation works.

Comments  We are POSITIVE on the news. The land sale will provide earnings visibility for Benalec at least for the next two years. The reclamation works had already started which will take two years to complete. The first tranche of the land disposal, i.e. 32.6 acres, is expected to be completed in end-FY14- or early-FY15, hence still within our land sale assumption.

 The disposal price tag of RM235.1m for the 128.5 acres translates to RM42 psf. Meanwhile, Benalec estimated that the cost to reclaim the land (i.e. NBV) is RM28 psf. This is slightly higher than that of our land reclaimation cost assumption of RM25 psf which we believe due to higher operating costs particularly energy and labor costs. In total, net profit of the land sale is estimated at RM58.5m.

 Who’s UHDSB? UHDSB is principally involved in the business of housing developers, acquisition of lands, houses and the business as general traders. We noticed that UHDSB is a repeated buyer of Benalec’s reclaimed land. The buyer bought 30 acres of Benalec’s reclaimed land in Klebang Melaka in September last year.  

Outlook  This huge land sale deal reinforces our POSITIVE view on Benalec. Although its performance may be dampened in the short-term due to some changes on its land sale method and slower progress on its marine construction, its long-term outlook remains intact due to its active land sale coupled with 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