Period  2Q15

Actual vs.Expectations Broadly within expectations. Benalec’s 6M15 corenet profit of RM15.5m accounts for 24% and 29% ofours and consensus’ full-year core net profitforecasts, respectively. We consider the results to bebroadly in line as we expect Benalec to report mostof the FY15 earnings in 4Q15, which includes 2pocket land sales in Malacca, which span c.158.1acres (RM286.6m).

Dividends  None as expected.

Key ResultsHighlights YoY, 2Q15 revenue and core net profit declined by37% and 86% respectively due to (i) slower landsales recognition, and (ii) losses in other divisions,i.e. land reclamation and vessel chartering followingslower construction works and higher opex.

 QoQ, despite 2Q15 revenue rose by 26% driven byhigher land sales, net profit declined by 71% draggeddown by loss in land reclamation division. (Referoverleaf)

Outlook  Waiting for big catalyst to materialize. The recentapproval of DEIA for Tg Piai project is seen as asignificant milestone for the Group.However, weprefer to see the Group ink the 1,000 acres landsales in Tg Piai with 1MY Strategic Terminal Oil. IfBENALEC can secure this deal, we estimate theGroup could fetch total revenue of RM2.2b (based onRM50 psf) spanning over 4-5 years. However, wethink that it would be challenging to achieve a decentland price considering the weak oil prices, which maycause a drag on off-taker discussions.

Change toForecasts No changes to earnings.

Rating Downgrade to MARKET PERFORM (fromOUTPERFORM)Valuation  BENALEC’s share price went up 55.8% YTD toRM0.88 exceeding our SOP-based TP of RM0.83.The strong share price performance mainly boostedby the recent DEIA approval to take off Tg Piai’s landreclamation.

 As the share price running ahead of its fair value, wedowngrade BENALEC to MARKET PERFORM withunchanged SOP-based TP (40% discount) ofRM0.83, implying PER on 10.0x FY16 EPS, in linewith small-mid cap construction industry PER rangeof 8-15x. At this juncture, we are reluctant to expandPERs as we think that the current investors euphoriawill subside as investors will be waiting for theultimate catalyst i.e. securing off-takers for thesizeable 1000 acres of land sales in Tg Piai, whichwe have yet to see it materializes since March 2013;thus far, there has been 8 times extensions already.

Risks to OurCall Higher-than-expected input costs

 Failure of obtaining land title

 Slower-than-expected land sales

Source: Kenanga