Period  4Q14/FY14

Actual vs. Expectations FY14 core net profit (after stripping out one-off items such as RM16.2m impairment of vessel, RM2.9m impairment of receivables and RM9.0m reversal of net profit) of RM35.3m came in largely within expectations, at 94% and 103%, respectively.

Dividends  None as expected.

Key Results Highlights For FY14, revenue and core net profit decreased significantly by 21% and 42% to RM211m and RM35.3m, respectively. The poor performance was mainly due to slower work and land sales recognition, but we believe the latter will start booking significantly from 1Q15 onwards.

 QoQ, its core net profit jumped by four-fold to RM12.5m due to low base effect. To recap, in 3Q14, Benalec recorded lesser progress of work recognition as some of the projects have already reached completion stage.

 YoY, core earnings was up by 42% due to low base effect. To recap, there was no land sales recognition in 4Q13.

Outlook  So far, in FY14, Benalec has sold 284.5 acres of land in Malacca amounting close to RM500m. All in, Benalec pockets net gain of RM106m from the land sales, which the group will recognize them progressively starting FY15. It also had secured RM204m of reclamation jobs in FY14, which has boosted its orderbook to about RM450m currently.

 We understand Benalec has about approximately 400 acres of land in Malacca (340 acres) and Pulau Indah (60 acres) which is “held for sale”. These lands could be worth about RM784m (based on an average selling price of RM40 psf).

 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 We maintain our FY15 forecasts and introduce our FY16 earnings forecast of RM71.2m. This represents 9.5% growth which we think is achievable due to the RM500m land sales that had been inked in FY14 coupled with RM450m in unbilled orderbook.

Rating Maintain OUTPERFORM

 While waiting for the ultimate catalyst to materialize (Tg Piai), which we believe would only occur in the longer term, we believe Benalec’s near-term catalyst will be the land sales in Malacca and Pulau Indah as it still has about 400 acres of ready land held for sale.

Valuation  We are maintaining our SoP-based Target Price of RM1.25, implying PER of 12.2x FY15 EPS, in line with mid-cap construction industry PER average of 12-15x.

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 sales

Source: Kenanga