Benalec favoured for niche in marine construction

KUALA LUMPUR: Benalec Holdings Bhd, which made its debut earlier this year, has not been spared the market sell-off in the last two months. Having dropped to its IPO issue price, it is still favoured by analysts for its niche in the marine construction industry.

The stock had slumped 61% from an all-time high of RM1.61 in April to its IPO price of RM1 on Sept 23. It rebounded from those levels to reach RM1.13 last Friday, Sept 30 but fell again on Monday amid the poor market performance to close at RM1.06.

The counter made its debut on Bursa Malaysia's Main Market on Jan 14.

The stock has been a firm favourite among analysts who like its high margins and niche in land reclamation. In late August, AmResearch maintained its "buy" recommendation call and upped its price target to RM2.22.

"We continue to like Benalec for its deepening penetration as an integrated marine engineering specialist," said the report.

Benalec is in the midst of bidding for land reclamation projects with a combined estimated contract value of RM8 billion and has a large unbilled order book of RM590 million, which the AmResearch report said will provide sufficient earnings visibility over the next five years.

The counter is also one of Kenanga Research's top picks for the construction sector. In a report on Sept 26, it said it likes Benalec for its niche business, which also means less competition for the company.

Kenanga Research's target price for Benalec was RM1.93.

At its EGM on Sept 9, the company also announced plans to focus on new growth areas of land development for the maritime industrial park and oil and gas (O&G) industry.

The group said it had placed bids for land reclamation projects in Melaka, Penang, Johor and Port Klang, with opportunities for property development.

The company has an unusual but highly profitable business model in which it receives large tracts of land at relatively low costs as part consideration for a land reclamation project. The land is then developed or sold.

"We are still negotiating and hopefully it can materialise in the next few months," Benalec managing director Vincent Leaw said after the EGM.

Bids for these land reclamation projects, which will have various sizes, have a contract value of about RM8 billion.

"Our intention to secure buyers from oil and gas and petrochemical as well as maritime industrial park sector is to diversify our customer base. The demand from the heavy industry on lands (to be reclaimed and developed) with bigger size is also on a growing mode, thus we would like to capture the opportunities in this area," said the group.

Some of the uses for the land include new sectors such as petroleum refineries, liquefied natural gas (LNG) plants, steel mills and shipyards. By venturing into these new growth areas, the group is looking at capturing a higher margin.

Land for both the O&G and maritime industrial park can be sold in plots of 50 to a few hundred acres, compared with the 10- to 15-acre plots that are usually sold.

Besides the new growth areas, the group is also looking at making more inroads into the region. With a presence in Singapore, Benalec is looking to create projects in Vietnam and Indonesia within the next few years.

Since its listing early this year, investors have taken a liking to the company for its unique niche in land reclamation projects that yield high margins that sometimes come with the opportunity to build a low-cost landbank for property development.

For its financial year ended June 30, 2011, Benalec reported a net profit of RM96.1 million, or 13.2 sen per share, derived mostly from dredging and land reclamation projects, with revenue of RM214.49 million.

At the EGM, the group received shareholders' approval for the disposal of six parcels of land in Melaka with a size of 1,627,405 sq ft  held by Sentosa Cove Development Sdn Bhd, its wholly-owned subsidiary of Vista Selesa Development Sdn Bhd, for RM45.57 million.

The sale will result in a gain of about RM30 million with cost of the land at just RM15.52 million.

Shareholders also approved the joint venture between Benalec and Vista Selesa to develop six parcels of leasehold land measuring 1.35 million sq ft with a minimum consideration of RM37.81 million for Benalec.