Benalec posts far better results in 2Q

Benalec posts far better results in 2Q
Business & Markets 2014
Written by AmResearch  
Wednesday, 05 March 2014 11:50
Benalec Holdings Bhd
(March 4, 89 sen)
Maintain buy call with an unchanged fair value of RM 1.31: We maintain our “buy” call on Benalec with an unchanged fair value of RM 1.31 per share, pegged at a 45% discount to its sum-of–parts value. The company returned to the black in the second quarter ended Dec 31, 2013 of financial year 2014 (2QFY14) with a net profit of RM25 millon, taking first half (1H) earnings to RM21 million. As per previous quarters, the group did not declare any dividends.

The turnaround in 2Q was largely driven by land sales. This translated to a pre-tax gain of RM32 million or pre-tax margin of 36%.

Revenue from land reclamation activities doubled quarter-on-quarter (q-o-q) to RM15 million. Its construction order book stands at approximately RM250 million.

In addition, the sequential improvements came from deposits received from forfeiture of a land transaction (RM5 million) and discounts received from sub-contractors (RM4 million).

The 1H results constituted 60% of our and only 46% of consensus’ full year forecasts. We are maintaining our FY14F net profit estimate of RM35 million.

While we expect a slowdown in progress billings following the completion of certain jobs in FY13, earnings will be underpinned by RM182 million worth of land sales that are backed by sale and purchase agreements (SPAs). Profit from disposals are likely to filter through over 2HFY14F and FY15F.

With its shareholding issue all but resolved under a heads of agreement, attention will gravitate towards Benalec’s ability to monetise the deep development potential of its concessions in Johor.

Nevertheless, Benalec’s share price will likely be capped unless there is tangible news flow of the 404.7ha land deal with 1MY Strategic Oil Terminal. The extended deadline to finalise the SPA is June 11, 2014.

In mitigation, Benalec is on the prowl for some cash jobs by leveraging its forte as an integrated marine engineering specialist. Some prospective bids may emerge in Melaka and Penang.

Tenders for reclamation works under Phase 1 of Eastern & Oriental Bhd’s Sri Tanjung Pinang Phase 2 project (155.4ha) in Penang, worth potentially over RM1 billion, could be called once regulatory approvals are received by 1H of 2014.

With cash flow from the land sales, Benalec was in a net cash position to the tune of RM18 million as at Dec 31, 2013 against RM9 million six months ago. — AmResearch, March 4




This article first appeared in The Edge Financial Daily, on March 05, 2014.