Construction company starting to reap benefits of diversification and expansion
SINCE early April, shares of Ekovest Bhd have risen by more than 60%. What is even more surprising is that at its current price of RM1.72, the stock is trading at a lofty 66 times earnings. So, what gives?
Notably, Ekovest, under the radar of analyst coverage, is now making more efforts in engaging investors.
At a meeting with a handful of fund managers last week, Ekovest Bhd sought to explain better its value proposition to investors. Discussions had centred on its business model and ambitious projects in the pipeline.
Ekovest’s business model is a bit unique as it is a construction company, but it also has a property development arm and a highway toll concession business.
For years, the company’s earnings have been lumpy and that is because its revenue is mainly derived from construction work.
But for the past five years the company has been working on expanding its sources of income to include highway concessions such as the Duta-Ulu Kelang Expressway (DUKE) which it built and operates - and property development.
“The trees we planted years ago are starting to bear fruit,” Ekovest’s managing director Datuk Seri Lim Keng Cheng says in an interview with StarBizWeek.
Lim points out that the DUKE highway is improving connectivity with existing expressways and public rail transportation systems such as the KTM Komuter, LRT and MRT lines. This in turn has created “a holistic transport system”.
And Ekovest has been accumulating land along Jalan Pahang and Jalan Gombak to undertake ambitious projects that could change the landscape of the area.
One such development, dubbed EkoRiver Centre, located along Jalan Pahang, will see the revitalisation of parts of Sungai Gombak into a special “double-deck” river, which can be used as a flood tunne and will have direct access to DUKE 2.
The project is estimated to have a gross development value (GDV) of RM2.11bil and will consist of three residential blocks, a shopping mall, an 80-storey office tower and a mall.
To finance that project, Lim reveals that the plan is use proceeds from the sale of a stake in the Duke highway concession, if it pans out.
StarBizWeek had speculated that Ekovest has been mulling options to monetise its highway assets, either via a 30% stake sale or a flotation of its entire infrastructure arm, a possibility which the company has confirmed.
When asked about this deal, Lim declined to elaborate or provide any hints about the name of potential investors in the Duke highway or the any valuation numbers, only to add that discussions are ongoing.
“We are looking to sell a strategic stake in Duke, but we will continue being a substantial shareholder of the highway,” Lim says.
Lim says the company targets its property development segment to contribute significant revenues in the next five years.
“Ekovest started off as a pure construction player back in 1987. We began to have new sources of revenue since 2013 when we launched our first property development project, EkoCheras and bought the remaining 30% stake in Duke in 2013.
“Our long term target is to achieve a revenue mix of 40% from construction, and 30% each from property development and toll concessions,” he says.
Right now, property development contributes around 13% of total revenue, construction makes up the bulk at more than 60%, while the toll concession division is about 21%.
Ekovest’s landbank is made up of 34 acres in Kuala Lumpur, 25 acres in Danga Bay, Johor and 12 acres in Kuantan, Pahang.
Lim says that Ekovest’s landbank has an estimated GDV of RM7.78bil and could be developed until 2035.
He however did not rule out listing the Duke tolled highway asset in Malaysia or Hong Kong.
Ekovest first bought a 70% stake in the 18-km Duke with a 34-year concession under an RM325mil share-swap deal with Wira Kristal Sdn Bhd in 2012.
It later acquired the remaining 30% stake in Duke from Malaysian Resources Corp Bhd for RM228mil in 2013.
That in total values the Duke highway at RM553mil.
Shares of Ekovest recently gained interest, rising more than 54% over the past two months.
This is despite the fact that the company’s second largest shareholder, Datuk Haris Onn Hussein, had disposed some of his shares.
Haris is the brother of Defence Minister Datuk Seri Hishammuddin Hussein Onn.
Between April 18 and May 11, Haris had disposed about 50 million shares in Ekovest reducing his stake to 14.4% from 18.3%. The disposal was through a “private arrangement”, according to filings with Bursa Malaysia.
The largest shareholder of Ekovest is Tan Sri Lim Kang Hoo, with a 20.19% stake.
He is also the major shareholder of unlisted
Iskandar Waterfront Holdings Sdn Bhd (IWH), the master developer of Johor Baru’s waterfront properties.
IWH also recently won the mandate for the Bandar Malaysia project and it has been speculated that tycoon Tan Sri Quek Leng Chan could emerge as a substantial shareholer IWH.
The recent interest in Ekovest shares is likely due to the plan to monetise its highway business, which could see the company enjoying a cash injection.
The other positive is Ekovest’s upcoming development of Duke phase 3, its largest highway project so far.
Lim says that Ekovest is targeting to start the construction of DUKE phase 3, now known as Setiawangsa-Pantai Expressway by mid of this year.
The 35-km highway would cost about RM3.74bil and comes with a concession period of more than 53 years.
It will cover areas stretching from Universiti Tunku Abdul Rahman, Wangsa Maju and Ampang to the Tun Razak Exchange and Kerinchi.
Lim says financing for the highway is expected to be completed by next month,
“We had received a lot of interest from investors, the take up rate for the bonds has been very good,” he says.
According to Bloomberg data, as at Dec 31, 2015, Ekovest had a total debt of RM2.12bil with cash and cash equivalents of RM810mil.
A huge chunk of its debt is ring fenced by its Duke Highway assets.
The main anchor for Ekovest now is that it is sitting on a construction orderbook of RM5.3bil, of which more than 70% is for the upcoming Duke phase 3 construction and the current Duke extension.
Right now Ekovest is constructing the expansion of phase two of Duke which is estimated to complete by the end of this year.
The 3-year project costs about RM1.18bil .
Lim says that following the completion of Duke 2, traffic volumes on the highway is expected to double.
In 2015, the Duke highway enjoyed a traffic volume of 48.14 million vehicles, which was more than a two-fold jump from its first year of operation in April 2009.
The extension of Duke 2 will expand the existing Duke from two ends; via a seven-km link from Sri Damansara and a nine-km link from Jalan Tun Razak.
Lim adds that the company is also looking to secure more highway projects in the future and has submitted several proposals.
On its property ventures, Lim explains that its maiden project EkoCheras is expected to contribute to the group’s turnover for this year from recognition of its unbilled sales.
EkoCheras is a mixed development project consisting of malls, residential and commercial properties with an estimated GDV of RM2.11bil.
“The residential part is almost fully-booked and would complete in 2018, while the retail portion with net lettable area of 600,000 sq ft to complete by next year,” Lim says.
This could be the first time in many years for Ekovest to embark on several ambitious projects simultaneously.
From the movement of Ekovest’s share price and the lofty valuation the market has attributed to the company, it is clear that some investors are banking that Ekovest will be able to execute its many projects in hand in a profitable way.