Period  1Q15

Actual vs. Expectations Broadly within expectations. Benalec’s 1Q15 core net profit of RM12.0m accounts for 18% and 21% of our, and consensus’, full-year core net profit forecasts, respectively. We consider the results to be broadly in line as we expect Benalec to report most of the FY15 earnings in 4Q15, which includes 2 pocket land sales in Malacca, which span c.158.1 acres (RM286.6m).

Dividends  None as expected.

Key Results Highlights YoY, Benalec’s 1Q15 core net profit recovered to RM12.0m from net loss of RM4.7m in 1Q14. This was owing to better recognition rate of land sales in 1Q15. To recap, Benalec sold about RM500m worth of lands in Malacca in FY14, of which RM212.3m was in 1H14 and the remaining RM283.2m in 2H14.

 QoQ, Benalec’s revenue rose 52% to RM47.9m thanks to the above-mentioned reasons. Meanwhile, Benalec’s 1Q15 was relatively flat at RM12.0m due to higher effective tax rate.

Outlook  So far, in FY14, Benalec has sold 284.5 acres of land in Malacca amounting close to RM500m. All in, Benalec pocketed net gain of RM106m from the land sales which will be progressively recognized from FY15 onwards. It has also had secured RM204m of reclamation jobs in FY14, which boosted its orderbook to about RM450m currently. We expect

Benalec to replenish another RM150m worth of orderbook in FY15 and FY16.

 We understand Benalec has about approximately 400 acres of land in Malacca (340 acres) and Pulau Indah (60 acres) which is “held for sale”. Based on RM40psf (which has imputed in our estimates), these lands could be worth about RM784m.

 Above al,l further key re-rating catalysts for Benalec lies in its Johor project and the signing of the SPA with 1MY Strategic Terminal Oil for 1,000 acres of land in Tanjung Piai.

Change to Forecasts    No changes to earnings.

Rating Maintain OUTPERFORM  While waiting for the ultimate catalyst to materialize (Tg Piai), which appears to be a longer term story, we believe Benalec’s near-term catalyst will be driven by 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 on 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 approvals for the DEIA and hydraulic study and final survey for its Johor project

 Slower-than-expected land sales

Source: Kenanga