- Maintain BUY on Benalec Holdings with an unchanged fair value of RM2.48/share. There were several incentives unveiled under Budget 2013 that are primarily aimed at strengthening Malaysia's positioning as an oil & gas hub.

- The incentives ' both special tax incentives and non-tax incentives ' are targeted at harnessing the oil & gas ecosystem that ranges from oil refining, storage and trading: (i) 100%-income tax exemption for a period of 10 years; (ii) Exemption of withholding tax & stamp duty; (iii) Cost of land acquisition/financial assistance for publicprivate partnership (PPP) projects; and (iv) Investments in refinery activities/petroleum products: Investment  tax allowance for a period of 10 years. 

- Total investments (US$20bil) in downstream oil & gas facilities in 2012 include PETRONAS' RAPID, oil & gas storage terminals in Johor, a re-gasification plant in Malacca and the Sipitang oil & gas terminal in Sabah.

- These latest developments are timely as it comes on the heels of Benalec's landmark development agreement with the Johor government to reclaim/develop 5,485 acres of prime seafront land in South Johor into a future oil hub.

- Significantly, we believe these various incentives would enhance Benalec's value proposition in securing off-takers for its Johor landbank ' positioned as a future oil hub. In particular, its Tg.Piai concession strategically located just 17km away from the vibrant Jurong petrochemical hub.

- The financial assistance for land acquisition is another positive for Benalec although its exact structure is unclear for ventures into the tank terminal business.     

- Then, there is the Global Incentive for Trading (GIFT) programme that will be enhanced with a 100% income tax exemption (3 years) accorded to LNG trading companies. These incentives for commodity trading under GIFT would now be extended to include agriculture, refined raw materials, base materials and chemicals.

- Once again, the added incentives under GIFT could pave the way for Benalec to widen its pool of buyers to include non-oil traders or fabricators. Notably, The Edge Weekly had recently said that Benalec's Pengerang landbank could be included in RAPID's masterplan.

- Just based on Benalec's 2,000 acres of land in Tg.Piai and a 25% discount to the market value on similar deals within this area, the implied value for Benalec's 70% entitlement rights in Johor is already RM900mil (RM1.14/share).

- Benalec is a new entry to the repositioning of South Johor as an emerging oil & gas hub. The stock is trading at only 7x-10x FY13F-15F PEs vs. the oil & gas sectors' 18x.

Source: AmeSecurities