Period  3Q14/9M14

Actual vs. Expectations  Benalec’s 9MFY14 core net profit of RM26.8m, at 71% of our estimates came in within expectations but was below consensus.

Dividends  As expected, no dividend was declared in 3Q14.

Key Results Highlights For 9MFY14, Benalec’s core net profit decreased by 51% to RM26.8m. The main drag for its net profit was due to the lower work recognition in the current year-todate period.

 QoQ, its net profit decreased by 76% to RM6.1m due to: (i) no recognition of land sales in 3Q14 vs RM5.4m in 2Q14, (ii) no discount received from sub-contractor in 3Q14 vs RM3.7m discount in 2Q14, and (iii) higher administrative costs.

 YoY, although revenue increased by 17% to RM70m, its net profit is down 42% from RM10.5m to RM6.1m. The drop in net profit was due to lesser work recognition and the absence of land disposal gain.

 Moving forward, we expect more land sales will be recognised in FY15 onwards on the back of RM500m inked land sales in FY14.

Outlook  So far, YTD, Benalec has sold 284.5 acres of land in Malacca amounting close to RM500m. All in, Benalec will pocket net gain of RM106m from these transactions. It also had secured RM204m of reclaimation jobs earlier this month, which has boosted its orderbook to about RM400m currently.

 We understand Benalec has about approximately 450 acres of land in Malacca (350 acres) and Pulau Indah (100 acres) which is “held for sale”. These lands could be worth about RM784m (based on an average selling price of RM40 psf).

 Elsewhere, Benalec could participate in the reclamation works of about 700 acres of land in E&O Holding’s project Seri Tanjung Pinang in Penang.

 Above all, Benalec’s further key re-rating catalyst lies in its Johor project and the signing of the SPA with 1MY Strategic Terminal Oil for 1000 acres of land in Tanjung Piai.

Change to Forecasts Maintained.

Rating Maintain OUTPERFORM

 The stock now offers 15.6% total return (12.6% capital gain and 3.0% dividend yield). We are thus maintaining our OUTPERFORM rating for now. We believe its current price has not fully priced in its healthy fundamentals (i.e. 1.40x PBV against its 3-year average PBV of 2.01x).

Valuation  We are maintaining our SOTP-based of RM1.25 for now.

Risks to Our Call Higher-than-expected input costs

 Failure to get an approval for the DEIA and hydraulic study and final survey for its Johor project

 Slower-than-expected land sale

Source: Kenanga