Borneo Post Online
7th May, 2014

KUCHING: Benalec Holdings Bhd’s (Benalec) awarded contract to undertake the construction, completion and maintenance of coastal reclamation and associated works in Malacca has been viewed as a positive development.

In an announcement on Bursa Malaysia, Benalec highlighted that its wholly-owned subsidiary Benalec Sdn Bnd had accepted the Letter of Award from Oriental Boon Siew (M) Sdn Bhd, a subsidiary of Oriental Rubber & Palm Oil Sdn bhd, which in turn is a sub-subsidiary of Oriental Holdings Bhd (Oriental).

The contract award requires Benalec to undertake the construction, completion and maintainance of coastal reclamation and associated works for Ultra Green Sdn Bhd for Phase 2A, Phase 3A, Phase 3B and Phase 4 in Malacca, covering a total area of approximately 415 acres.

According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), it views the news positively as this project will boost its orderbook significantly to roughly RM400 million from RM200 million.

“It is also well within our replenishment orderbook assumption of RM400 million in financial year 2015 (FY15),” the research added, noting that the work will start in June 2014 (FY15).

Furthermore, Kenanga Research highligted that the good news is that this contract consideration will be paid in cash (progress billings) by the client.

“Assuming a 20 per cent pre-tax margin, the project will contribute about RM10.2 million to Benalec’s net profit every year until FY17,” it projected.

On a side note, the research arm pointed out that the project value of RM203.9 million excludes the revetment works which may be awarded in later part.

AmResearch Sdn Bhd (AmResearch) has on the other hand, pointed out that this contract appears to be a repeat job from the Oriental group, and underscores Benalec’s solid track record as an integrated marine engineering outfit.

The research house further noted that prior to this, Benalec had previously undertaken previous reclamation works for the Oriental group in Malacca.

“More importantly, 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,” it opined. Based on a conservative margin of 15 per cent and assuming equal contributions over the next two financial years, AmResearch estimates that this new contract would make up 23 per cent and 13 per cent of its FY15F and FY16F net profit forecast, respectively.

The research house has thus left its earnings forecast unchanged for now.

Beyond Malacca, it observed that Benalec is keeping a close eye on other prospective reclamation contracts to replenish its orderbook.

These include tenders for reclamation works under Phase 1 of Eastern & Oriental Bhd’s STP2 project in Penang (384 acres) worth potentially over RM1 billion which could be called once regulatory approvals are received by the first half of 2014 (1H14).

“Be that as it may, 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-2H14,” AmResearch opined.

Overall, although Benalec’s performance may be dampened in the short-term due to some changes in its land sale method, and slower progress of its marine construction, Kenanga Research reiterated that the group’s long-term outlook remains intact due to its active land sale coupled with attractive sea-fronting land concessions in Malacca and Johor (which is expected to
start contributions from FY15 onwards, albeit in a gradual manner).

With that, having left its earnings estimates unchanged, the research arm maintained its ‘outperform’ call on the stock and sum of parts-based (SoP-based) target price at RM1.25 per share, at this juncture.

Similarly, AmResearch maintained its ‘buy’ rating on Benalec with a fair value of RM1.31 per share, pegging the stock at a 45 per cent discount to its estimated SOP value.

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