News  Benalec secured a RM203.9m construction contract from Oriental Holdings Bhd (NOT RATED). The project involves construction, completion & maintenance of coastal reclamation and associated works in Malacca covering a total area of approximately 415 acres. The project is scheduled to start in 3Q2014 and is expected to be completed by 4Q2016.

 The project shall be executed in 2 stages of which Stage 1 covers 275 acres while Stage 2 covers 140 acres. Nonetheless, the works for both stages will be done simultaneously.

Comments  We view the news positively as this project will boost its orderbook significantly to roughly RM400m from RM200m. It is also well within our replenishment orderbook assumption of

RM400m in FY15 (the work will start in June 2014 (FY15). Furthermore, the good news is that this contract consideration will be paid in cash (progress billings) by the client. Assuming a 20% pre-tax margin, the project will contribute about RM10.2m to Benalec's net profit every year until FY17.

 Note that the project value of RM203.9m excludes the revetment works which may be awarded in later part.

Outlook  Although its performance may be dampened in the short-term due to some changes in its land sale method, and slower progress of its marine construction, its long-term outlook remains intact due to its active land sale coupled with attractive sea-fronting land concessions in Malacca and 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