Benalec Holdings - To the fore in Johor BUY

Stock Name: BENALEC
Company Name: BENALEC HOLDINGS BERHAD

Research House: AMMB

Price Call: BUY

Target Price: 2.85

Maintain BUY on Benalec Holdings with an unchanged fair valueof RM2.85/share ' based on the sum-of-parts methodology. Benalec unveiled1HFY12 results which were largely in line with expectations ' accounting for 52%-53%of both consensus and our full-year estimates. 

Net profit jumped 18% YoY on:- (i) a RM33mil gain on land salesin Malacca that was booked in 2QFY12; and (ii) a significant 10.5ppt QoQ jumpin EBIT margin for its marine division (ex-land sales).    

Benalec's outstanding order book stands at approximately RM541mil(~2.7x FY11 construction revenue), providing earnings visibility for the nextfour years.

We continue to like Benalec for its exciting prospects as oneof the fast-emerging integrated marine engineering specialists in Malaysia andthe region. 

A key re-rating catalyst comes in the form of the group's excitingforay in Johor, where it had in November secured agreement-in-principledevelopment rights to 5,245 acres of prime seafront land in South Johor.

The group is working hard to obtain the necessary approvals,where its immediate focus will be on Tg.Piai ' located on the south west ofJohor and just 17km away from Singapore's vibrant petrochemical hub inJurong. 

To be sure, Benalec has also signed an MoU with Singapore-basedRotary engineering to co-develop an integrated petroleum storage facility on250 acres  of reclaimed land atTg.Piai. 

Poignantly, Benalec is set to gain from multiple new earningsstreams via marine-related works and associated recurring income from theownership of this proposed oil terminal. We have assumed land sales of ~300acres each for FY13F-14F. 

Valuations remain compelling at FY12F-14F PEs of 5x-9x againsta robust EPS CAGR of 22% and supported by decent yields of 4%-9% on a targetedpayout ratio of ~30%.

Near-term prospects would be driven by: (i) cyrstallisation ofa further agreement with the Johor government; (ii) conversion of a formal SPAwith Rotary; and (iii) Securing off-takers to its prime Johor landbank. 

In addition, the group is also actively bidding for more reclamationjobs beyond Malacca ' notably in Penang, Selangor and Singapore.  

Source: AmeSecurities