Wednesday, March 30, 2011

Banelac ... Mar11

Its specialised niche in marine construction has been reaping high profit margins in the generally low-margin construction industry. Now, the company is also shaping up to be a major landowner and developer, as it will receive some 177.3 acres (70.92ha) of land in Melaka in exchange for reclamation works.

It is open to joint ventures with property developers for the prime seafront land it is reclaiming in Melaka, broadening the company’s previous practice of selling plots of reclaimed land outright.

The company is an integrated marine construction firm with business activities spanning marine construction works, vessel chartering, marine transportation, ship maintenance and building, and marine support services.

Although the company’s first priority is to sell its reclaimed land, Benalec is in talks with several property companies on prospective partnerships. The current trend is for developers to share profits with landowners instead of paying cash upfront for land.

For outright disposals, the company could also sell plots of land along with concept plans for development and would take the step of zoning certain plots for mixed development as an added value for buyers.

Benalec’s unit Jayamas Cekap Sdn Bhd had entered into an agreement with Melaka government-owned Yayasan DMDI to undertake reclamation works for the latter on a portion of the coast in the Kota Laksamana area in Bandar Melaka.

The Melaka government had granted Yayasan DMDI a concession to reclaim the land, which will measure about 250 acres upon the completion of reclamation works.

Jayamas Cekap will be entitled to 177.33 acres of the land upon completion of the reclamation works, which will be retained on its balance sheet as “Land held for sale”. The remainder 72.67 acres will be surrendered to the Melaka government and Yayasan DMDI as consideration for the deed of assignment (DoA) from the latter.

Jayamas Cekap will also have to fork out some RM4.58 million for various payments in respect of the DoA.

The reclamation works will be funded by internally generated funds and bank borrowings, the breakdown of which is not currently available.

Sources say the deal is significant for Benalec as the land concession holds immediate development potential for Benalec once reclamation works are complete.

The Kota Laksamana project is expected to draw attention from property developers as it sits on prime seafront land within Melaka’s city centre and can be further developed for mixed residential or commercial purposes. Benalec may be entering into strategic partnerships with reputable developers to monetise the deep embedded value of this land.

Benalec is expected to fetch over RM30 per sq ft from the Kota Laksamana land having received about RM28psf for an adjourning piece of land in 2009.

Benalec stands to reap a net gain of about RM116 million from land disposals alone over a three-year reclamation period.

Funding is not an issue for Benalec since the group raised up to RM100 million from its IPO in January 2011.

Benalec had also secured another contract , from Glenmarie Cove Development Sdn Bhd, to undertake earth and river protection works for RM37 million at a project in Klang. The scope of works includes earthworks, reclamation works, ground treatment and protection works. It is scheduled for completion within 14 months.  

The company is estimated to have clinched new contracts worth RM608 million for the financial year-to-date, compared to RM77 million in 2010. Estimates new order of RM650 million for Benalec for the financial year ending June 30, 2011.

The newly secured RM37 million reclamation contract in Selangor would undoubtedly put Benalec on a stronger footing to clinch more such contracts, both at home as well in the region.

The contract is the second, the group has secured within March 2011, following the Kota Laksamana project in Melaka.

Revenue and profits from reclamation contract works are recognised on a percentage-of-completion method. This is determined on the proportion of actual reclamation contract costs incurred for works performed against the estimated total reclamation costs where the outcome of the project can be estimated reliably.

For land reclamation contracts which are settled in kind, it is able to proportionately recognise the land portion at each stage of completion and the contract sum for such land portion is included as “amounts due from contract customers”.

Benalec’s niche in marine construction and land reclamation gives the company much higher margins than its construction peers.

For its financial year ended June 30 (FY10) , Benalec’s gross profit margin was 48.6% while profit before tax and profit after tax margins were 58.9% and 50.1% respectively.  In its second quarter ended Dec 31, Benalec reported a net profit of RM18.91 million and revenue of RM45.22 million. For the six months, its net profit stood at RM48.87 million while revenue was RM97.43 million.

Going forward, its prospects for growth are based on future projects in the pipeline located in Penang, Melaka, Iskandar Malaysia, Port Klang and the Sarawak Corridor of Renewable Energy.

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