Benalec to bank on land reclamation, sales for now

CHALLENGING MARKET: Affin Hwang places ‘hold’ call with target price of 57 sen

BENALEC Holdings Bhd may have to rely on reclamation projects and land sales to keep growth steady for the next few years pending the search for a partner for its oil terminal project in Tanjung Piai, Johor.

Chief executive officer Datuk Vincent Leaw Seng Hai expects a double-digit growth to 10 per cent in the financial year 2018 (FY2018) as it expected to start more reclamation projects within the year.

“Despite the challenging market, we expect to see growth in financial year 2018,” he said after the company’s annual general meeting, here, yesterday.

Affin Hwang Investment Bank analyst Loong Chee Wei is cautious about Benalec’s performance in FY2017 and FY2018 due to high earnings risk from its reclamation projects in Malacca and high execution risk for its Tanjung Piai petrochemical storage farms.

“We expect better performance for Benalec in FY2017 and FY2018, assuming the company is able to get land titles for reclaimed lands sold in Malacca.

“Financing and execution risk remains high for the Tanjung Piai project as Benalec has not found a partner to jointly develop the oil storage terminal.

“We do not see a catalyst until this is resolved,” he said. (From left) O&C Electric Technique Co Ltd chief executive Vanio Wang exchanging documents with Innorail chief executive officer Lim Chai Chang in Kuala Lumpur yesterday, witnessed by Deputy International Trade and Industry Minister Datuk Chua Tee Yong. Pic by Rosela Ismail

Loong maintained a “hold” call on Benalec for the two financial years and would not rerate the recommendation until it had addressed the financing and execution risks in Tanjung Piai via a joint-venture partnership.

Affin Hwang’s net profit forecasts for FY17 and FY18 are RM28.8 million and RM37.7 million, respectively. Its target price for Benalec is 57 sen. It closed at 37.5 sen yesterday.

Benalec’s core business is reclaiming land from the sea and selling the plots to property developers.

On the petrochemical project, the company expects it to provide recurring and sustainable income once it starts operations.

Leaw said Benalec expected the project to begin operations by early 2020 and hoped it could progress from a non-binding memorandum of understanding (MoU) with a potential partner for the project.

In June, Benalec signed the MoU with a potential partner to construct and operate a bulk liquid storage terminal for oil and oil-related products on the very first 40.5ha of reclaimed land at Tanjung Piai Maritime Industrial Park.

“The partner is one of the world’s largest international logistics service providers.

“At this juncture, we have carried out the commercial, financial and technical feasibility studies of the project and we hope to be able to progress into the next stage of this joint development within the next few months,” said Leaw.

Sime Darby posted a core net profit of RM276 million in the first quarter of its 2017 financial year.

“We think the results will improve substantially in the subsequent quarters, led by plantation and motor segments and a gradual recovery in industrial segment.

“The group has also set a higher Key Performance Indicator of RM2.2 billion for its financial year 2017, compared with RM2 billion previously. No dividend was declared for the quarter.”

PublicInvest upgraded its call on Sime Darby from “neutral” to “outperform”, with a higher target price of RM9.30 after pegging a higher price earnings valuation for the plantation arm as it saw the likelihood of Sime Darby unlocking its potential value via a demerger exercise, given the current bullish sentiment for crude palm oil prices.

It also said the group was expected to benefit from the Kuala LumpurSingapore high-speed rail project as it believed two of the stops, namely Labu and Muar, would be located near its plantation estates.

“It will help unlock the asset value of its plantation land, which can be turned into property play. The project will call an open tender by the fourth quarter of next year,” said PublicInvest.

Plantation makes up more than 50 per cent of the group’s earnings and is expected to do well in financial year 2017, riding on the stronger crude palm oil prices despite muted FFB production growth.