Wednesday, September 26, 2012

What's wrong with Benalec

Investors do not understand a marine engineering business? People do not know what it does? You know I feel weird when almost all (in fact all) broking firms that cover the stock, give positive light on the stock.

Look below from It gets 5 star rating. These firms gave a price range from RM1.53 to RM2.48 whereas the company is now trading at RM1.14. That's as much as more than 50% below its real value! Is this why the owners are accumulating?

AMMB gives headline such as "Latent value bottled up waiting to be unearthed. BUY" and "Agreement sealed; now for the big push! Buy". There could be no better headlines that this.

Fundamental wise, Benalec is expected to be trading at below 10x prospective PE with very strong book order and the company is expected to be kept busy until 2016.

Now let me look at the other side of things. Frankly, I try not to be spoiler or be thinking on some of the negatives (believe me, I am also looking at opportunities if possible). However, these are what are I am looking at. Look below at the latest Balance Sheet. Remember, I always put importance on strong cashflow type of companies. Benalec's balance sheet is not weak but it is filled with long term and / or weaker assets. Its receivables are high - I don't know why. Lands and properties held for sale are high as well. So is the PP&E. Its cash and cash equivalent is decent at RM130 million - but if you noticed the increase was mainly due from its fund raising from IPO a year ago.

From what I read, what is its business model which is also to be its competitive advantage as reported?
It is the 2nd largest marine engineering company (largest being Muhibbah, I think) and its expertise is in land reclamation. It has all the tools and machineries to do that. Land reclamation is supposed to be getting bigger in the near future especially along the coast of Peninsular Malaysia, particularly Johor. This is where Benalec is getting its jobs.

Now, what I am of less unsure is that in some of the articles, Benalec is deemed to be of having a better business advantage than its competitors as in some of the projects it bid for, Benalec would accept land as payment rather than cash. That is obviously attractive to the project awarding side. With that, Benalec's margin could be much higher than the rest of its competitors as it is willing to take what the rest are not willing to accept.

My biggest apprehension with this business model is cashflow. Benalec gets land. It has to find a buyer for the land or itself will need to develop the land - which presumingly it does that, then Benalec has now turn itself into becoming a developer? Sounds good, but this model needs even more funding rather than cashing.

If you look at the balance sheet, it is almost certain that the businesscompany is into selling the parcel of property it owns. Isn't that the hard part?

I think that the company is not expensive, with the positiveness that are provided by so many of the research houses. But something is not right somewhere. As the saying "one man's meat another man's poison", could it be that the business model is great for some, while not so positive for others?

I hope that it is the case of mispricing.

Benalec's share price trend


FreeMan_自由人 said...

Thanks for sharing.

This counter was use to be one of my cup of tea.

I buy&sell several time when the price fluctuate from 1.3 to 1.38.

but, as usual... at the end I lost all my stake when it broke the 'seems to be' support level at 1.30.

but one thing for sure worth to have alook...after GE.

felicity said...

Ya it is part and parcel of investment. but do you know that this is part of their strategy - to lure traders to make short term money then let the share drop and weak holders will sell?

FreeMan_自由人 said...

Agree on " their strategy" point, but as a market trader, I've no choice to drop this out. and I dropped it at 1.25.

I keep mentioned at GE...mind to share your view of GE vs KLSE?