Triple streams of income for Ekovest

by **hlk** Fri 01 Nov 2013, 12:23

Business & Markets 2013
Written by Kenanga Research
Friday, 01 November 2013 10:03
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Ekovest Bhd
(Oct 31, RM2.75)
Trading buy with a fair value of RM2.86 to RM3.22: After completing the
acquisition of the Duta-Ulu Kelang Expressway (Duke), Ekovest is set to extend
the highway for another 6km to 8km to Jalan Tun Razak and Sri Damansara
(Duke 2).
Ekovest has already issued RM2.3 billion bonds to refinance the existing
Duke’s debt and finance Duke 2’s capital expenditure of RM1.2 billion.
Other than that, Duke 2 will also boost Ekovest’s total order book to about
RM1.4 billion (external: RM590 million) from RM230 million currently and
improve the highway’s traffic flow, hence giving higher recurring income for the
group in the foreseeable future.
Recently, Ekovest pre-launched its maiden property project in the Klang Valley,
EkoCheras, and it was well-received by the market with almost all the units in
the serviced apartment block taken up.
We gather that the total gross development value for the entire EkoCheras
project stands at RM1.6 billion.
Location wise, EkoCheras is strategically situated adjacent to the proposed
mass rapid transit (MRT) Line 1. It will be the “first of many” property
development ventures for Ekovest as it has another 20 acres (8ha) of
undeveloped landbank in the Klang Valley. Further launches are expected next
year.
Ekovest also has about 25 acres of land in Danga Bay, Johor.
While construction remains its bread and butter business, we like Ekovest for its efforts taken to diversify into property and infrastructure.
We also gather that the average daily traffic (ADT) for Duke has already met the consultants’ target and should contribute some profit
starting next year.
Also, the recently launched EkoCheras project will start contributing to the group’s bottom line next year. By then, Ekovest will be a
triple-play with earnings streams from construction, property development and highway operations.
Currently trading at 11 times price-earnings ratio on 2014 financial year (FY14) earnings, Ekovest appears expensive vis-à-vis its small to
mid cap construction peers which are trading at an average of eight times to nine times.
As it is no longer a pure construction company, valuation of Ekovest based on sum-of-parts (SOP) could be valued in a range of RM2.86
to RM3.22 [50% to 35% discount to revised net asset value (RNAV) for its property].
In our SOP, we value Duke 1 and 2 at RM460 million, derived from discounted cash flow-based (weighted average cost of capital: 7.2%),
also in line with the latest independent valuation of the highway, applying eight times to its FY14 construction earnings, and RNAV of
RM363 million to RM472 million with an applied discount of 50% to 35%.
The higher discount rate of 50% takes into account the recent measures announced by the government to tighten the property sector. —
Kenanga Research, Oct 31