News  Yesterday, Benalec announced that a land deal between its wholly-owned subsidiary Heritage Land Sdn Bhd (HLSB) with Highbond Capital Sdn Bhd (HCSB) and Gigayear Revenue Sdn Bhd (GRSB) had fallen through due to the latters’ failure to make payment for the balance 90% of the sale consideration amounting to RM48.9m after the extended deadline of 10 Dec 2013.

 On a separate announcement, Benalec further extended the validity of the term sheet with 1MY Strategic Oil Terminal Sdn Bhd for another six months until 11 June 2014 or such other date that is agreeable.

Comments  We were surprised with the cancellation of the land sale as we clearly did not expect the purchasers failing to make payment for the balance 90% of sales consideration of RM48.9m. To recap, Benalec entered into a sales and purchase agreement with HCSB and GRSB back in July for the disposal of 8 pieces of leasehold land in Klebang measuring c.41.5 acres for a total consideration of RM54.3m. A deposit of 10% (RM5.4m) on the total sales consideration of RM54.3m was subsequently made by HCSB and GRSB.

 Management guided that there would not be any more extension given to HCSB and GRSB to make payment for the balance of the sales consideration of RM48.9m. Hence, Benalec is entitled to forfeit the RM5.4m deposit.

 As for the extension on its term sheet with 1MY Strategic Oil, this is rather within our expectations as both parties have yet to finalise the terms and conditions of the sale and purchase agreement couple with the Environmental Impact Assessment (EIA) studies report, which is still pending approval from the Department of Environment. Despite the delay on the EIA studies, we are still rather positive with the project as it is progressing well given that certain marine sub-contractors had tendered for its Tanjung Piai project.

Outlook  Benalec’s performance would likely be dampened in the short-term due to certain changes on its land sale method and slow progress on its marine construction. However, its long-term outlook remains intact due to the attractive sea-fronting land concession in Johor, which is expected to start contributions from FY15 onwards, albeit in a gradual manner.

Forecast  We cut our FY14E and FY15E earnings by 35% and 10% to RM37.9m and RM65m, respectively, as we factored in: (i) delay for some of the projects in Melaka and (ii) higher reclamation cost.

Rating Maintain OUTPERFORM

Valuation  Following our revision in earnings, we further revised downwards our SOP based TP from RM1.39 to RM1.25.

Risks to Our Call Further delays on the EIA studies for its Johor project

 Sharp increase in material prices

Source: Kenanga