Benalec ... Profits From Land Deals Recognize In 2015 Onwards !!!

Its significant losses in its fourth quarter of RM15.63mil for the period ended June 30, 2014 was a kitchen-sinking exercise.

One of the factors was the interruption during the period leading up to the EGM for shareholders to approve the heads of agreement (HoA) undertaken to settle the earlier boardroom tussle. The HoA basically sets out the framework to settle all legal suits, grievances, disputes and claims between the company and its former directors – Datuk Leaw Tuan Choon, Datuk Leaw Ah Chye and Tua Choon’s son, Leaw Yongene.

On top of that, Benalec recognised some RM16mil in impairment charge for its vessels, and a reversal of a RM9mil gain on land sale from an earlier related-party transaction

In January 2014, it actually sold a lot of land and closed over 200 acres, equating to about RM400mil. There’s a delay in recognition of profit because the sales can only be recognised when we complete and deliver the land.

The recognition will come in the 2015 and 2016 financial years. Recognition from a land sale takes at least four months. After the sales and purchase agreement (SPA) is signed, the fastest is a three month-plus-one month timeline. So, it will not be able to recognise profits from the sale until after four months from the signing of the SPA.

To recap, Benalec posted a net loss of RM15.63mil in the fourth quarter, against RM4.04mil in net profit in the previous corresponding quarter. Revenue fell to RM31.53mil from RM66.84mil a year ago. For the full year, the marine construction specialist saw net profit shaved to RM7.21mil compared with RM56.75mil a year ago, while revenue fell to RM211.02mil from RM265.84mil.

Since then (June 2014 & Beyond), it had closed a few land deals as well as secured a land reclamation contract, which is the RM203.89mil contract given by Oriental Boon Siew (M) Sdn Bhd for 416 acres in Malacca.

For those land deals it has secured, it will line up profits for the company over the next two to three years from Aug 2014. The group is set to receive RM360mil from three land sales with SPAs that will likely be recognised over the next three years from Aug 2014

The company has a total landbank of 635 acres, with the majority of it in Malacca. Of the 635 acres it has, 535 acres are in Malacca and 100 acres in Pulau Indah. Benalec has so far reclaimed 400 acres, with the remaining 235 acres are to be reclaimed.

Taking into account current (Aug 2014) market prices, the total value of the landbank could be RM950mil.

It is now (Aug 2014) in discussions with four potential buyers.

The company is in negotiations with three concessionaires to own the rights to reclaim more sea-fronting land in Malacca. In concessionaires, it will have about 400 acres in the pipeline. Should Benalec get the three concessionaires, it could boost its orderbook by another RM800mil from RM450mil currently.

Benalec has also submitted proposals for reclamation work in three other states.

The company has an internal target to sell 100 acres to 200 acres of reclaimed land per year.

Its key re-rating catalyst still largely depends on Benalec’s ability to monetise the deep development potential of its Johor concessions. All eyes will be on its protracted negotiations with 1MY Strategic Oil Terminal Sdn Bhd, which will lapse on Dec 11 2014 following three rounds of extensions.