Benalec Holdings Bhd
(Dec 31, RM0.56)
Maintain “buy” with higher target price (TP) of RM0.74: Approvals for the Detailed Environment Impact Assessment (DEIA) report for Benalec’s 3,485-acre (1,410ha) Tanjung Piai Integrated Petroleum Hub and Maritime Industrial Park is expected in first quarter of 2015 (1Q15). The binding term sheet to undertake the reclamation works and sale of approximately 1,000 acres of land in the concession has been extended for the fourth time to June 11, 2015. Reclamation works can commence after approvals are secured. The DEIA study on the 1,760-acre Pengerang reclamation concession is still ongoing. Based on a selling price of RM50 per sq ft (psf) for the initial 1,000 acres, rising to RM75 psf for the remaining 2,485 acres as well as a conservative net profit margin of 10%, the Tanjung Piai concession will generate approximately RM10 billion in billings and RM1 billion in net profit over the next 10 to 15 years.

Net profit margin may exceed 10%. Net margin for the group ranged from 14% to 53.3% in financial years 2009 to 2013 (FY09-FY13), and dipped to 3.4% in FY14 before recovering to 25.1% in 1QFY15. Based on a selling price of RM50 psf and net profit margin of 10%, we forecast a total revenue and net profit of RM3.8 billion, and RM383 million from the Pengerang concession.

We tweaked our FY15E-FY17E forecasts lower by 0.5% to 4.6% after incorporating higher depreciation and a higher share base (808.1 million versus 804.4 million previously).

At current low implied FY15E-17E price-earnings, our “buy” rating is maintained. TP for the stock is raised from 68 sen (10 times FY15 earnings per share [EPS]) to 74 sen (10 times calendar year 2015 EPS).

Approval to start work on the Tanjung Piai concession will greatly enhance profit forecasts and valuation. — AffinHwang Capital Research, Dec 31

This article first appeared in The Edge Financial Daily, on January 2, 2015.