Benalec

In May 2014 its wholly-owned unit Benalec Sdn Bhd secured a RM204 million contract (excluding rock revetment works) from the Oriental Group in Malacca. 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, estimate that this new contract would make up 23% and 13% of its financial year 2015-2016 forward net profit forecast respectively.

In Feb 2014 its unit has entered into a S&P for the disposal of 22 piece of commercial land for a total consideration of rm235 million.

This development is positive as the disposal is done before the reclamation process, enabling the group to immediately crystallize the value of its land bank, hence improving its cash flow.

The land disposal is line with the group’s business model in selling a portion of the reclaimed land, which improves a settlement in kind for cash. This also provides an avenue for Benalec to raise funds to repay its borrowings as well as finance ongoing and future reclamation projects.

The disposal will reduce its net gearing ratio to 0.05 times from 0.06 times.

Expect to be a few more disposals in the immediate future…

Meanwhile the implementation of major terms under the heads of agreement in Jan 2014 has resulted in Datuk Leaw Seng Hai assuming full control of Benalec, thereby addressing fears of sibling discord and lawsuits affecting core operations.

Uncertainties surrounding the sale of 1000 acres of reclaimed land to 1MYStrategic Oil Termimal in its Tanjung Piai concession continue to be a drag on the share price.

Management guided that the negotiations on the S&P agreement are in the final stages and are scheduled to commence works in the middle of 2014.

To enhance its current (Feb 2014) order book of about rm250 million the group is also bidding for projects in Penang and Pahang.

Increased tourist inflows and economic activities in Melaka will continue to benefit Benalec as it has a ready stock of land of about 400 acres in the state and rights over another 450 acres.

In Pulau Indah, Selangor the group is in talks with buyers on an en bloc sale of 144 acres of land reclaimed for industrial use.

Commencement of land reclamation on the Johor concessions will substantially boost marine construction billings and profit.

Key risks include a negative outcome from the environmental impact assessment, further delays in the sale of 1000 acres of reclaimed land to 1MYStrategic Oil Terminal, a global economic slowdown and weak petroleum demand affecting demand for reclaimed land and a shortage and spike in prices of raw materials especially land.