News  BENALEC announced that the Detailed Environment Impact Assessment Study (DEIA) submitted by its 70%- owned subsidiary Spektrum Kukuh Sdn Bhd has been officially approved by the Department of Environment (DOE) on 23rd January 2015. The DEIA study pertains to the reclamation works for the Group’s Tanjung Piai Integrated Petroleum & Petrochemical Hub and Maritime Industrial Park project. The project comprises a manmade island to be sited off the south-western coast of Johor.

 Phase 1 of the proposed project is targeted to commence in February 2015. The Group still has to obtain other necessary approvals from the state and other relevant governmental departments before it can start work.

Comments  Although it is not a major surprise, we are POSITIVE on this news as: (i) the official DEIA approval from DOE will eliminate the market concern on the implementation of the Tg Piai project, (ii) the commencement of the project’s Phase 1 (estimate about 1,000 of total 3,485 acres) is one step closer for the Group to secure more land sales from its potential off-takers in Tg Piai, and (iii) the Group’s land reclamation area (including those that already reclaimed) ready to be sold is now officially boosted by 3,485 acres to about 4,000 acres. (refer overleaf for more comments).

Outlook  Remain bright. While the DEIA approval for Tg Piai project is seen as a significant development for the Group, we reiterate our view that further re-rating catalyst for the Group lies in BENALEC inking the 1,000 acres land sales in Tg Piai with 1MY Strategic Terminal Oil. If BENALEC can secure this deal, we estimate the Group could fetch total revenue of RM2.2b (based on RM50 psf) spanning over 4-5 years.

 Elsewhere, BENALEC has about approximately 341 acres of land in Malacca (281 acres) and Pulau Indah (60 acres) which is “held for sale”. Based on RM40psf (already imputed in our estimates), these lands could be worth about RM595m. Forecast  Unchanged.

Rating Maintain OUTPERFORM

Valuation  While waiting for the ultimate catalyst to materialize (Tg Piai’s 1000 acre land sales with 1MY Strategic Terminal Oil), which appears to be a longer-term earnings driver, we believe Benalec’s near-term catalyst will be driven by land sales in Malacca and Pulau Indah as it still has about 341 acres of ready land held for sale.

 Furthermore, BENALEC might also surprise on the upside if it can secure land sales with other off-taker for its Tg Piai project.

 Note that we have already imputed in Benalec’s Tg Piai project in our SOP. As such, we are maintaining our SoPbased Target Price (40% discount) of RM0.83, implying PER on 10.3x FY15 EPS, in line with small-mid cap construction industry PER range of 8-15x.

Risks to Our Call  Higher-than-expected input costs

 Failure of obtaining land title

 Slower-than-expected land sales

Source: Kenanga