Malaysia: Benalec in for the long haul in Tanjung Piai

The Star 31 Jan 15;

BENALEC Holdings Bhd is far from done with its reclamation project in south Johor.

Although it has just received approval to commence reclamation work for Tanjung Piai, it still has some 20 years before the whole project is completed.

Analysts say the next crucial step for Benalec is to secure off takers for the Tanjung Piai site and that would be a catalyst for the counter.

AmResearch’s May Hoy Ken believes Benalec’s “real litmus test” starts now. “With the DEIA (detailed environmental impact assessment) approval now secured, investors’ attention will naturally gravitate towards management’s ability to secure the maiden offtakers for Tanjung Piai,” he says.

According to the Tanjung Piai Maritime website, phase one is 1,000 acres, phase two another 1,000 acres and phase three, the remaining 1,485 acres.

An analyst says some buyers may prefer to see the physical development of the reclaimed land such as the set up of the jetty and the progress of work.

“It is crucial for Benalec to secure an off taker for phase one so that they can proceed with the reclamation work. Otherwise, their cashflow will be very tight,” says the analyst.

Kenanga Research estimates Benalec’s cost of reclamation at RM30 to RM35 per sq ft while CIMB Research assumes it will be RM52 per sq ft. Based on a cost assumption of RM30 per sq ft, it takes RM1.3mil to reclaim one acre and RM130mil to reclaim 100 acres.

However, the analyst points out that lower crude oil prices may bring down Benalec’s cost of reclamation because diesel, which accounts for some 20% of the overall cost.

On Tuesday, Benalec announced that it received the approval from the Department of Environment to commence reclamation work for its 1,410ha Tanjung Piai integrated petroleum and petrochemical hub and maritime industrial park in the Straits of Johor.

In its filing with Bursa Malaysia, the company said its 70%-owned subsidiary Spektrum Kukuh Sdn Bhd and Perbadanan Setiausaha Kerajaan Johor received the approval that came with several conditions.

One being that phase one of the proposed project includes the construction of an oil terminal, the construction of a jetty and a bridge linking the island to the mainland and dredging.

Also, the approval is valid for a two-year timeframe.

It is understood that Benalec has already begun work on the project, ahead of analysts’ expectations of work starting in February.

Mak says Benalec is in the midst of finalising its funding options to kick-start reclamation works, which he believes could involve around 100 acres to 200 acres initially.

“As at Sept 30, 2014, the group was in a healthy net cash position of around RM48mil. Furthermore, there are about RM312mil worth of land sales (173 acres) with SPAs (sales and purchase agreements) to be progressively recognised over the next three financial years,” he says.

More importantly though, the company has crossed a major milestone in the group’s quest to reposition Tanjung Piai as a future oil hub, he adds.

Tanjung Piai’s deep water depth and close proximity to the Jurong Petrochemical Hub puts it in a prime position to tap into spillover demand for oil storage from the various MNCs that are currently operating in Singapore, Mak adds.

CIMB says Benalec signed a development agreement with the state of Johor some two years ago, which gave the company the right to reclaim land at two sites in south Johor, namely Tanjung Piai for 20 years and Pengerang for 10 years.

Assuming that the average reclamation cost is RM52 per sq ft, a fair RM65 per sq ft selling price, and that works begin in 2015, Benalec could stand to gain RM566mil in net profit over five years, says CIMB.

“This is equivalent to double the group’s 2015 forecasted net profit. Our RNAV (revised net asset value) estimate factors in outstanding reclamation works in Malacca and potential new reclamation works representing just 20% of Tanjung Piai’s 1,000-acre,” says CIMB.

The research house is optimistic on Benalec’s chances to regain some lost ground in the long-delayed land reclamation contracts in south Johor.

However, all eyes are on the still-pending land sale of 1,000 acres of reclaimed land to 1MY Strategic Oil Terminal Sdn Bhd (1MYSOT). The 1MYSOT deal is for the reclamation and sale of 1,000 acres in Tanjung Piai for the construction and operations of a crude oil and petroleum storage facility together with a private jetty.

“The binding term sheet has been extended by an additional six months expiring June 11. While waiting for the terms and conditions of the sale and purchase agreement with 1MYSOT to be finalised, we expect Benalec to continue discussions on the sale of other parcels of land to be reclaimed with potential buyers while initial works commence,” says Affin Hwang Capital.