THE time is ripe to relook toll concession operator, property developer and construction firm Ekovest Bhd.
With two major projects worth over RM2bil due for completion in three years’ time, profits are expected to see significant jumps over this period.
The two immediate high impact projects are the RM1.18bil expansion of the Duta-Ulu Kelang Expressway (Duke) extension and the development of its EkoCheras property project for RM1.63bil. They are targeted for completion by end-2016 and end-2017 respectively.
On May 28, Ekovest underwent a one-for-two share split, and is now trading ex-rights at RM1.15.
Ekovest also proposed a rights issue of 244.41 million shares with 122.21 million free warrants with one free warrant for two rights shares. The rights issue is on the basis of two rights shares for every five existing Ekovest shares.
The rights price have been determined at RM1, which is a discount of 17.9% from the theoretical ex-all price of RM1.22.
The narrow discount of the rights is a strong indication that the major shareholders of the company are not looking to reduce their shareholdings. If they had wanted to dilute their holdings, the rights would have been priced at a bigger discount to entice shareholders.
Ekovest is controlled by Tan Sri Lim Kang Hoo and Datuk Haris Onn Hussein, the brother of Defence Minister Datuk Seri Hishammuddin Hussein Onn.
Lim has a 32.38% stake in Ekovest while Haris owns 20.81% via Kota Jayasama Sdn Bhd.
Ekovest currently has a market capitalisation of RM855.45mil. The completion of the rights exercise will see Ekovest’s market capitalisation crossing the billion-ringgit mark.
The immediate catalyst for the company is completion of the 30% acquisition of Duta-Ulu Kelang Expressway (Duke) from Malaysia Resources Corp Bhd (MRCB) for RM228mil in January. This now gives it full ownerships of the 59-year concession up to 2059.
Back in 2012, Ekovest first bought a 70% stake in the 18-km Duke under an RM325mil share-swap deal. Ekovest owned the 70% via Wira Kristal Sdn Bhd. The owners of Wira Kristal are Lim and Haris.
Last December, Ekovest achieved financial close for the expansion of phase two of Duke where it raised RM1.18bil. Works have begun, and Ekovest’s construction arm will be handling the construction works for the highway.
The highway will expand the existing Duke from two ends; via a 7km link from Sri Damansara and a 9km link from Jalan Tun Razak.
“This expansion will give Duke a boost in traffic from both sides. Every year, we are already recording a 6% growth in ridership. With the completion of this expansion, we will see an additional 15% jump. So traffic will likely increase to 180,000 travellers from the current 120,000 travellers, once it is completed by end-2016,” said Ekovest managing director Datuk Lim Keng Cheng (pic).
For the quarter to March 31, 2014, Ekovest’s net profit dropped 59.43% to RM3.5mil on the back of a 145% increase in revenue to RM63.43mil.
The decrease in profits was mainly due to a lower recognition of interest income from the toll operations compared to the previous quarter as a part of the interest income was capitalised during the construction of Duke phase two.
For the nine-month period, net profit was down 67.76% to RM10.09mil on the back of a 129.13% increase in revenue to RM182.95mil.
Ekovest’s revenue stream is 40% from the construction and property development segment, while the toll concession contributes 30%.
Lim is especially excited over Ekovest’s immediate high impact maiden mixed development project, EkoCheras, with a gross development value (GDV) of over RM1.63bil located strategically along Jalan Cheras, next to the proposed Leisure Mall MRT station.
“Piling work on the EkoCheras project has started. Next up is EkoGateway and the EkoTitiwangsa venture which will begin soon,” he says.
Of EkoCheras’ RM1.63bil value, RM800mil is for the residential portion while the remainder is for the commercial portion.
Lim says some 60% of the RM800mil residential project has been sold to date.
“We intend to keep the commercial portion, as moving forward, we want to build our recurring income,” says Lim.
As it is, the company has property projects worth RM5.6bil in the Klang Valley and some RM4.4bil of projects in Danga Bay, Johor. All these projects will last the company until 2023.
The group now has some 20 acres land bank in Kuala Lumpur and 25 acres in Johor.
“Our land bank is situated mostly near major highways, Ekovest’s style is to buy land and wait for the area to mature and for more infrastructure to come up before we start developing. When Duke is completed, this will be another boost for our developments,” he says.
“Our Johor land is situated near the coastal highway and tourist hotspot of Danga Bay. We will wait for it to mature, before developing it,” he says.
Lim added that it was in talks with foreigners to jointly develop its land, although nothing concrete had materialised so far.
“I am still very positive on development in Johor despite so much talk of oversupply. Property has always been a long-term game. People do not realise that with the Chinese coming to buy Johor property, so much foreign direct investment is being created.
The River of Life
Another revenue earner for Ekovest will be the RM4.4bil River of Life (RoL) project in Kuala Lumpur. Ekovest has a 60% stake in the joint-venture company appointed the project delivery partner (PDP) of RoL in 2011 by the Government. MRCB holds the remaining 40%.
The RoL is a seven-year anchor project of the Economic Transformation Programme for Greater KL that aims to breathe new life into the polluted Klang and Gombak rivers.
The project calls for a massive cleanup and redevelopment of an 110 km stretch of river by 2019. In return, the contractors given the mandate get plots of land along the river for development.
Some RM3.4bil has been allocated for the river cleanup, while the remainder RM1bil is for the beautification of the river in which the PDP of Ekovest-MRCB is allowed to participate via a Swiss challenge method.
To date, Ekovest-MRCB has secure a RM130mil beautification works contract in Precint 7 under the RoL.
There are two other ways Ekovest can benefit from the RoL project. Firstly, as PDP partner, Ekovest can earn incentives up to RM300mil for its three main roles, which is to help the Government monetise its land along the river, and to help reduce government cost by providing alternative design for river cleaning and to ensure the key performance indicators of the river beautification programme are met.