Beachfront land for sale

KUALA LUMPUR: Newly-listed Benalec Holdings Bhd is standing out from its construction peers and rapidly gaining investor attention.

Its specialised niche in marine construction has been reaping high profit margins in the generally low-margin construction industry. Now, the company is also shaping up to be a major landowner and developer, as it will receive some 177.3 acres (70.92ha) of land in Melaka in exchange for reclamation works.

Benalec said it is open to joint ventures with property developers for the prime seafront land it is reclaiming in Melaka, broadening the company's previous practice of selling plots of reclaimed land outright.

The company is an integrated marine construction firm with business activities spanning marine construction works, vessel chartering, marine transportation, ship maintenance and building, and marine support services.

Kenneth Chin, Benalec's chief financial officer, told The Edge Financial Daily that although the company's first priority is to sell its reclaimed land, Benalec is in talks with several property companies on prospective partnerships.

"The current trend is for developers to share profits with landowners instead of paying cash upfront for land. Now is a good time for us to participate as landowners because there is upside for us," Chin said.

For outright disposals, Chin said the company could also sell plots of land along with concept plans for development and would take the step of zoning certain plots for mixed development as an added value for buyers.

Last Monday, Benalec announced that its unit Jayamas Cekap Sdn Bhd had entered into an agreement with Melaka government-owned Yayasan DMDI to undertake reclamation works for the latter on a portion of the coast in the Kota Laksamana area in Bandar Melaka.

The Melaka government had granted Yayasan DMDI a concession to reclaim the land, which will measure about 250 acres upon the completion of reclamation works.

Jayamas Cekap will be entitled to 177.33 acres of the land upon completion of the reclamation works, which will be retained on its balance sheet as "Land held for sale".

The remainder 72.67 acres will be surrendered to the Melaka government and Yayasan DMDI as consideration for the deed of assignment (DoA) from the latter.

Jayamas Cekap will also have to fork out some RM4.58 million for various payments in respect of the DoA.

Benalec said the reclamation works will be funded by internally generated funds and bank borrowings, the breakdown of which is not currently available.

Chin declined to specify the cost of direct reclamation work for the Melaka land, citing competitive reasons.

In a note dated Mar 15, AmResearch said the deal is significant for Benalec as the land concession holds immediate development potential for Benalec once reclamation works are complete.

The Kota Laksamana project is expected to draw attention from property developers as it sits on prime seafront land within Melaka's city centre and can be further developed for mixed residential or commercial purposes, AmResearch said.

"We also do not preclude the possibility of seeing Benalec entering into strategic partnerships with reputable developers to monetise the deep embedded value of this land," the research house noted.

AmResearch said it expects Benalec to fetch over RM30 per sq ft from the Kota Laksamana land having received about RM28psf for an adjourning piece of land in 2009.

Based on AmResearch's initial estimates, Benalec stands to reap a net gain of about RM116 million from land disposals alone over a three-year reclamation period.

The research house also said funding is not an issue for Benalec, which has a projected net gearing of 11% in FY11F, since the group raised up to RM100 million from its IPO in January.

Two days ago, Benalec secured another contract , from Glenmarie Cove Development Sdn Bhd, to undertake earth and river protection works for RM37 million at a project in Klang.

The scope of works includes earthworks, reclamation works, ground treatment and protection works, the company said, adding that it is scheduled for completion within 14 months.

In its prospectus, Benalec said the revenue and profits from reclamation contract works are recognised on a percentage-of-completion method.

This is determined on the proportion of actual reclamation contract costs incurred for works performed against the estimated total reclamation costs where the outcome of the project can be estimated reliably, Benalec said.

For land reclamation contracts which are settled in kind, Benalec said it is able to proportionately recognise the land portion at each stage of completion and the contract sum for such land portion is included as "amounts due from contract customers".

Analysts note that Benalec's niche in marine construction and land reclamation gives the company much higher margins than its construction peers.

For its financial year ended June 30 (FY10), Benalec's gross profit margin was 48.6% while profit before tax and profit after tax margins were 58.9% and 50.1% respectively.

In its second quarter ended Dec 31, Benalec reported a net profit of RM18.91 million and revenue of RM45.22 million.

For the six months, its net profit stood at RM48.87 million while revenue was RM97.43 million.

The company said, going forward, its prospects for growth are bright, based on future projects in the pipeline located in Penang, Melaka, Iskandar Malaysia, Port Klang and the Sarawak Corridor of Renewable Energy (SCORE).

AmResearch expects Benalec to post a net profit of RM92.6 million for FY11 and RM118.8 million for FY12, with earnings per share of 12.7 sen and 16.3 sen respectively.

Benalec ended on Tuesday, Mar 22 nine sen higher to RM1.32 on heavy volume of 14.98 million shares. The stock made its debut on Jan 17 and rose to a high of RM1.53 on Feb 8. Its lowest was RM1.19 on March 17.

At Tuesday's closing price, its shares are trading at a price-to-earnings ratio of 10.4 times for FY11 and 8.1 times for FY12, which analysts view as attractive relative to the sector and the broader market, notwithstanding the company's own robust margins and growth prospects.

AmResearch has a "buy" call on the stock with a target price of RM1.90.

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