Benalec continues to draw interest

Shares of Benalec Holdings Bhd continued to draw investor interest a day after its debut on Bursa Malaysia.

Despite the weak stock market conditions, its shares traded initially higher, rising by three sen to RM1.37 before succumbing to the market sell-off to end one sen lower at RM1.33. A total of 18.85 million shares were traded.

The stock’s one sen loss, however, was viewed as relatively small in the context of the market’s poor performance, where declining stocks thumped advancing ones by a 4-to-1 ratio while the FBM KLCI shed 4.45 points to 1570.04. Moreover, Benalec’s stock had already surged 34 sen or 34% in its debut on Monday, where it ended at RM1.34 versus its IPO price of RM1.00.

Analysts are generally positive on the company, with fair values ranging from RM1.16 to RM1.95, noting its strength in marine construction, which is a high-margin niche market.

The most bullish of these fair values is from Maybank IB Research, whose RM1.95 sum-of-parts fair value was based on 12 times forward earnings for Benalec’s operations and RM19 psf for its landbank. AmResearch has a sum-of-parts fair value of RM1.90.

At the other end of the scale, both JF Apex Securities and TA Securities have a fair value of RM1.16 each, based on peer price-to-earnings comparison.

Benalec’s operations comprise land reclamation, dredging and the construction of marine structures. For the most recent financial year, 89% of the revenue was derived from marine construction for local clientele, with the remaining 11% from ship chartering services provided in Singapore.

With an estimated market share of 17.9%, it is the second largest marine construction firm in Malaysia, according to a Frost & Sullivan report. Benalec’s strength also lies in its vertical integration as it owns a significant portion of the operational framework. In the company’s IPO prospectus, it is noted that for the past three years, only an average of 17.7% of their activities were outsourced.

The company has eight projects in the pipeline until 2016, with an unbilled order book of RM673 million. It is currently bidding for projects worth RM 5.7 billion in Melaka, Penang, Selangor and Johor.

Looking ahead, a lack of seafront land in Penang and Melaka proves encouraging for land reclamation activities, whereas Johor continues to invest in the development of Iskandar Malaysia. Other possible opportunities include the Sarawak Corridor of Renewable Energy (Score) and Sabah Development Corridor (SDC).

Benalec’s earnings and margins have risen sharply in the past few years.

For the financial year ended June 2008, the company reported a net profit of RM13.4 million. This increased to RM17.3 million in FY09 and RM58.4 million in FY10, or eight sen per share. Net profit margins dipped slightly from 18.1% in FY08 to 14.3% in FY09, but surged to a hefty 50.1% in FY10.

AmResearch forecasts Benalec’s net profit to increase by 83% to RM 92.6 million or 12.7 sen per share in FY11. The research house expects this to accelerate to RM118.8 million in FY12 and RM141.1 million in FY13, with earnings per share of 16.3 sen and 19.3 sen, respectively. It noted the company’s earnings CAGR is 41% from just RM51 million in FY10.

According to AmResearch, Benalec is also believed to be the frontrunner for three jobs worth RM680 million combined. They are Glenmarie Cove, The Lights reclamation works, and contracts for the supply and delivery of more construction materials in Singapore. - by Sheikh Al-Zaquan Amer Hamzah, theedgemalaysia.com