The Star Online
30th August, 2014

DESPITE the significant losses reported by Benalec Holdings Bhd in its fourth quarter of RM15.63mil for the period ended June 30, 2014, the company’s executives say it was a kitchen-sinking exercise.

One of the factors, chief financial officer Kenneth Chin says, was the interruption during the period leading up to the extraordinary general meeting (EGM) for shareholders to approve the heads of agreement (HoA) undertaken to settle the earlier boardroom tussle.

The HoA basically sets out the framework to settle all legal suits, grievances, disputes and claims between the company and its former directors – Datuk Leaw Tuan Choon, Datuk Leaw Ah Chye and Tua Choon’s son, Leaw Yongene.

On top of that, Benalec recognised some RM16mil in impairment charge for its vessels, and a reversal of a RM9mil gain on land sale from an earlier related-party transaction.

“In January, we actually sold a lot of land. We closed over 200 acres, equating to about RM400mil. There’s a delay in recognition of profit because the sales can only be recognised when we complete and deliver the land.

“We had a lot of activities but no recognition, which also contributed to the drop in profits. The recognition, I believe, will come in the 2015 and 2016 financial years,” he says.

Group managing director Datuk Vincent Leaw adds that recognition from a land sale takes at least four months. “After the sales and purchase agreement (SPA) is signed, the fastest is a three month-plus-one month timeline. So, we will not be able to recognise profits from the sale until after four months from the signing of the SPA,” he says.

To recap, Benalec posted a net loss of RM15.63mil in the fourth quarter, against RM4.04mil in net profit in the previous corresponding quarter. Revenue fell to RM31.53mil from RM66.84mil a year ago.

For the full year, the marine construction specialist saw net profit shaved to RM7.21mil compared with RM56.75mil a year ago, while revenue fell to RM211.02mil from RM265.84mil.

But things are looking up for the company, its executives say.

“Since then, we have picked up our activities and closed a few land deals as well as secured a land reclamation contract, which is the RM203.89mil contract given by Oriental Boon Siew (M) Sdn Bhd for 416 acres in Malacca,” says senior independent non-executive director Bernard Koo.

For those land deals it has secured, Koo says it will line up profits for the company over the next two to three years. The group is set to receive RM360mil from three land sales with SPAs that will likely be recognised over the next three years.

The company has a total landbank of 635 acres, with the majority of it in Malacca.

Of the 635 acres it has, 535 acres are in Malacca and 100 acres in Pulau Indah. Benalec has so far reclaimed 400 acres, with the remaining 235 acres are to be reclaimed.

Taking into account current market prices, Koo says the total value of the landbank could be RM950mil.

“We are now in discussions with four potential buyers. We will try our best to close at least one or two in the next two to three months,” says Vincent.

As at Thursday, the company’s market capitalisation stood at RM747.48mil.

He adds that the company is in negotiations with three concessionaires to own the rights to reclaim more sea-fronting land in Malacca. “In concessionaires, we have have about 400 acres in the pipeline. We will possibly know in the next six months. We have to allow for more time to close the deal,” he says.

Should Benalec get the three concessionaires, it could boost its orderbook by another RM800mil from RM450mil currently.

Benalec has also submitted proposals for reclamation work in three other states.

The company has an internal target to sell 100 acres to 200 acres of reclaimed land per year.

Analysts say the key re-rating catalyst still largely depends on Benalec’s ability to monetise the deep development potential of its Johor concessions.

“All eyes will be on its protracted negotiations with 1MY Strategic Oil Terminal Sdn Bhd, which will lapse on Dec 11 following three rounds of extensions,” says AmResearch analyst Mak Hoy Ken in a report.

Vincent is, however, confident that the deal with 1MY will happen, as talks are in the advanced stage.

Benalec’s business model is slightly different from other construction companies. Chief operating officer Bernard Koey says the company has an unconventional business model.

“We operate in a niche market. Our model is to reclaim land and at settlement, we accept land in kind. This gives us three layers of profit.

“We have chartering profit (from self-owned vessels) and reclamation profit, and once we get the land, we will wait until it is the right time to sell,” he says.

The company also has its own shipyard to repair and maintain its vessels. “We are very integrated and in that sense, we have quite full control of our costs,” he adds.

Analysts were surprised that Benalec has not yet declared any dividends for 2014. To this, Koo says: “We are considering a payment of dividend for 2014, in line with our policy.”

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