News  BENALEC announced that it has entered into SPAs with Strategic Land Sdn. Bhd. and Heritage Land Realty Sdn. Bhd. to dispose nine pieces of land amounting to 70.5 acres in Pekan Klebang, Malacca for cash consideration of RM128.9m (RM42 psf). The sale consideration will be satisfied entirely in cash and some parcels (six of them) are conditional upon BENALEC procuring the land title issuances.

Comments  We are NEUTRAL on the news as the land sales are well-within our forecasts of 150 acres land sales for FY15 (FYE: June). So far, including this land sales, the group has sold 144.1 acres. We gather that all the reclamation works on the land have already been completed. Hence, assuming the group could secure the lands’ title issuances in 3-6 months from now, these land sales would be booked in BENALEC’s bottomline within mid-FY16-early FY17.

 The disposal price tag of RM42 psf is slightly higher than our assumption of RM40 psf. Nonetheless, the cost to reclaim the land (i.e. NBV) is RM27.4 psf, also slightly higher than our land reclamation cost assumption of RM25 psf. Hence, in total, the group expects to book RM33.6m of net profit, implying net margin of 26% (in line with our FY16 net margin forecasts). All in, we expect the bulk of these land sales to be recognised in FY16.

Outlook  We estimate by now, BENALEC has about approximately 260 acres of land in Malacca (200 acres) and Pulau Indah (60 acres) which is available for sale. Based on RM40psf (already imputed in our estimates), all these pieces of land could be worth about RM453.0m.

 Waiting for big catalyst to materialize. Nonetheless, we reaffirm our view that the ultimate catalyst for the group is to ink 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. However, we think that it would be challenging, considering the weak oil prices, which may be a dampener on off-taker discussions. Forecast  No changes to earnings as the land sales value is within our estimates.

Rating Maintain MARKET PERFORM

Valuation  Maintain SOP-based TP (40% discount) of RM0.83, implying PER on 10.0x FY16 EPS, in line with smallmid cap construction industry PER range of 8-10x.

Risks to Our Call  Higher-than-expected input costs

 Failure of obtaining land title

 Slower-than-expected land sales 

Source: Kenanga