BENALEC (5190) : Benalec Holdings - 1Q15 boosted by land sale gains
Target RM0.75 (Stock Rating: REDUCE)
Benalec's annualised 1Q15 core net profit made up 75% of our full-year forecast and 86% of consensus. This letdown was due to our overestimation of the recognition of land reclamation works and land sale gains. We expect its EBITDA margin to trend lower than our forecasted 24% for the full year, as the over 40% achieved in 1Q15 does not reflect the higher land reclamation costs, in view of the rising diesel costs. We cut our FY15-17 EPS forecasts. Despite the roll-over to end-2015, our target price (still pegged to a 40% RNAV discount) declines as we update for balance sheet items. Uncertainties in meeting the targeted Dec deadline for the Tanjung Piai SPA and depleting orders are potential de-rating catalysts. Maintain Reduce. Switch to Gamuda.
Seasonally weak quarter for land reclamation in 1Q15
Annualised 1Q15 core net profit made up 75% of our full-year forecast and 86% of consensus. The results were below expectations as we had overestimated the contribution from land reclamation contracts and land sale gains. The 40% EBITDA margin in 1Q15 should be representative of the full year as it has yet to factor in the resumption of progress works for land reclamation contracts that are exposed to higher diesel costs – as operating cost increased 70% yoy. We now expect a full-year EBITDA margin of c.17% vs. 24% previously. The vessel and marine construction division reported losses in 1Q15. This was partially offset by the RM29m booked as land sale gains.
Balance of land sale gains to support earnings in FY15
We continue to expect Benalec's earnings risks to be partially mitigated by its potential additional land sale gains in Melaka. Contribution from land sale profits should be driven mainly by the sale of 158 acres of land worth RM286.6m. The bulk of the expected land sale gains of c.RM40m-50m, based on a conservative 15% net profit margin should be recognised in FY15.
Higher operating cost and Tanjung Piai overhang
Operating cost rose 70% yoy in 1Q15, likely due to the rising prices of diesel (a major cost component for its land reclamation works). The second and recent subsidy reduction for petrol and diesel may put further pressure on operating costs. Also, the uncertainties in meeting the Dec-14 target for the signing of the Tanjung Piai contract could further weigh on the share price.
Source: CIMB Daybreak - 19 November 2014
Target RM0.75 (Stock Rating: REDUCE)
Benalec's annualised 1Q15 core net profit made up 75% of our full-year forecast and 86% of consensus. This letdown was due to our overestimation of the recognition of land reclamation works and land sale gains. We expect its EBITDA margin to trend lower than our forecasted 24% for the full year, as the over 40% achieved in 1Q15 does not reflect the higher land reclamation costs, in view of the rising diesel costs. We cut our FY15-17 EPS forecasts. Despite the roll-over to end-2015, our target price (still pegged to a 40% RNAV discount) declines as we update for balance sheet items. Uncertainties in meeting the targeted Dec deadline for the Tanjung Piai SPA and depleting orders are potential de-rating catalysts. Maintain Reduce. Switch to Gamuda.
Seasonally weak quarter for land reclamation in 1Q15
Annualised 1Q15 core net profit made up 75% of our full-year forecast and 86% of consensus. The results were below expectations as we had overestimated the contribution from land reclamation contracts and land sale gains. The 40% EBITDA margin in 1Q15 should be representative of the full year as it has yet to factor in the resumption of progress works for land reclamation contracts that are exposed to higher diesel costs – as operating cost increased 70% yoy. We now expect a full-year EBITDA margin of c.17% vs. 24% previously. The vessel and marine construction division reported losses in 1Q15. This was partially offset by the RM29m booked as land sale gains.
Balance of land sale gains to support earnings in FY15
We continue to expect Benalec's earnings risks to be partially mitigated by its potential additional land sale gains in Melaka. Contribution from land sale profits should be driven mainly by the sale of 158 acres of land worth RM286.6m. The bulk of the expected land sale gains of c.RM40m-50m, based on a conservative 15% net profit margin should be recognised in FY15.
Higher operating cost and Tanjung Piai overhang
Operating cost rose 70% yoy in 1Q15, likely due to the rising prices of diesel (a major cost component for its land reclamation works). The second and recent subsidy reduction for petrol and diesel may put further pressure on operating costs. Also, the uncertainties in meeting the Dec-14 target for the signing of the Tanjung Piai contract could further weigh on the share price.
Source: CIMB Daybreak - 19 November 2014
