Period

3Q15/9M15

Actual vs. Expectations

Below expectations. 9M15 core net profit of RM6.5m came in way below expectations, making up only 10.0% and 15.8% of our and consensus’ full-year forecasts, respectively.

The huge variance was due to the big chunk of the locked-in land sales that are yet to be recognized following delay in achieving the land title issuances by the land authority. We were initially expecting the group to secure the land title issuances by this financial year.

Dividends

None as expected.

Key Results Highlights

Benalec delivered a net loss of RM9.0m as compared to that of last quarter’s net profit of RM3.5m and 3Q14’s net profit of RM2.1m. We understand that this is the worst quarter since the group went for listing in 2011. Despite the group already locked-in land sales of RM523.0m and holding an orderbook of RM203m, the group hardly book in any profits since last year. This was due to the delay in achieving the land title issuances by the land authority.

YTD, the group delivered core net profit of RM6.5m in 9M15, significantly lower by 72% than that of 9M14’s RM22.8m due to the abovementioned reasons.

Outlook

Gloomy short-term earnings outlook. As bulk of the locked-in land sales have yet to secure the land title issuances, we are wary that subsequent quarters could continue to disappoint.

Waiting for big catalyst to materialize. We also 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.

Change to Forecasts

We cut our FY15-16E earnings forecast by 86.7%-14.1% pursuant to the delay in land sales recognition.

Rating

UNDER REVIEW

Valuation

We are putting the stock under review for now, pending meeting with management soon. We are now concerned on the group’s earnings outlook given the persistent earnings disappointment as well as the prospect of the group securing any offtakers in Tanjung Piai. Our previous call was MARKET PERFORM with TP of RM0.83.

Risks to Our Call

Higher-than-expected input costs

Failure of obtaining land title

Slower-than-expected land sales

Source: Kenanga Research - 26 May 2015