-  Maintain BUY on Benalec Holdings with a lower fair value of RM1.31/share. This pegs the stock at a steeper discount of 45% to its sum-of-parts value (previously 15%) to mainly account for:- (i) timing risk associated with its Johor concessions; and (ii) shift in recognition from recent land sales in Malacca to 2QFY14 onwards.

-  In this report, we strive to address a few issues that may have weighed the stock down in recent months despite its core fundamentals remaining intact.

-  Firstly, we see the recent management shake-up (in light of a civil suit filed against two of its directors last week) as having minimal impact on Benalec’s operations. Group MD Dato’ Vincent Leaw and his professional team are very hands-on in managing the group, especially in regards to the Johor operations. Furthermore, senior management personnel have been re-deployed to take active charge of the duties left vacant.

-  Secondly, Benalec’s repositioning of Tg. Piai as a future oil hub still have deep appeal over the mid- to longer-term. Back in March, the group had signed a binding term sheet with 1MY Strategic Oil Terminal Sdn Bhd. The deadline for the binding term sheet has since been pushed back by six months to 11 December 2013 until all the terms and conditions of the SPA are finalised.

-  While we would not preclude a further extension to this timeline given the sheer size, complexity and magnitude of this project, its investment merit and dynamics remain firmly entrenched with a potentially sizeable reclamation contract in the pipeline (c.RM2bil).

-  Thirdly, we do not see any delays in the rollout of PETRONAS’ RAPID to have an impact Benalec’s plans in Johor. Benalec’s immediate focus is to develop its Tg. Piai landbank (3,485 acres), which targets the established oil & gas giants already operating at Jurong’s vibrant petrochemical hub (~7 nautical miles away).

-  Benalec is trading at a deep discount of 58% to our revised SOP, which only includes 3,000 acres of its Tg. Piai landbank (total concession: 5,485 acres including another 1,760 acres in Pengerang). While sentiments may be muted in the near-term, the stock could materially rerate if there are tangible developments in the group’s forays in Johor.

-  Other positive factors are:- (1) strong balance sheet (net cash position of RM87mil for FY14F); (2) share price support via 30% dividend payout (gross yields of 2% to 6% over the next three years); and (3) beyond the 1MY deal, Benalec is actively scouting for more investees to realise Tg. Piai’s potential as a future oil hub. It is also on the lookout for more cash jobs/reclamation concessions.

Source: AmeSecurities