AmWatch - Benalec Holdings : Secures more work in Malacca BUY, 6 May 2014

STOCK FOCUS OF THE DAY

Benalec Holdings : Secures more work in Malacca             BUY

We maintain BUY on Benalec Holdings with a fair value of RM1.31/share. This pegs the stock at a 45% discount to its estimated sum-of-parts (SOP) value. Benalec announced yesterday evening that the group’s wholly-owned unit, Benalec Sdn Bhd, has secured a RM204mil contract (excluding rock revetment works) from Oriental Boon Siew (M) Sdn Bhd. Benalec will undertake the construction, completion & maintenance of coastal reclamation, as well as associated works for Ultra Green under Phase 2A, Phase 3A and Phase 4 in Malacca.

The project would be executed in two stages covering 415 acres. Each stage would be completed within 30 months from the date of site possession.  Reclamation works are set to kick off by the third quarter of 2014 with 4Q 2016 being its targeted completion.

Prior to this, Benalec had previously undertaken previous reclamation works for the Oriental group in Malacca. We believe that this cash job is timely as it beefs up Benalec’s cash flow position ahead of its future prospects, notably in Johor. Based on a conservative margin of 15% and assuming equal contributions over the next two financial years, we estimate that this new contract would make up 23% and 13% of our FY15F and FY16F net profit forecast, respectively. We leave our earnings forecast unchanged for now.

Benalec is keeping a close eye on other prospective reclamation contracts to replenish its orderbook. Tenders for reclamation works under Phase 1 of E&O’s STP2 project in Penang (384 acres) worth potentially over RM1bil could be called once regulatory approvals are received by 1H 2014. Benalec’s key re-rating projects still hinges on its ability to monetise the deep development potential of its concessions in Johor. We gather that efforts to obtain regulatory approvals are gaining traction, with tangible newsflow likely to come towards end-2H 2014.

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