EKOVEST Share Price RM1.92 Target Price RM3.00 Upside +56.3%
Rise Of The DUKE
Ekovest is a deeply undervalued contractor and concessionaire. Its recent 40% sale of DUKE 1 & 2 to EPF implicitly values just one of its many assets at RM2.8b, below its RM1.7b market cap. It also recently obtained a 53.5-year concession to build and operate a new 50km urban expressway, which will support its construction arm’s profit growth. Initiate coverage with BUY and SOTP target price of RM3.00, implying 18.2x FY18F PE, supported by a 3-year earnings CAGR of 69%.
• Value unlocking of a vital urban traffic dispersal system. Ekovest recently announced it has entered into a binding term sheet that would see it selling a 40% equity stake in Konsortium Lebuhraya Utara-Timur (KL), the holding company of the Duta-Ulu Kelang Expressway (DUKE) 1 and 2, to the Employees Provident Fund (EPF) for RM1.13b. This sum implicitly values the expressways at RM2.82b vs Ekovest’s market cap of RM1.69b. While the group has made no official commitments, we do not discount the possibility that part of the cash proceeds would be declared as special dividends in the near term.
• DUKE 3 – the next big boost. Ekovest’s longer-term outlook was given a boost with the recent announcement that it has been granted a 53.5-year concession to build, operate and transfer the new 50km Setiawangsa-Pantai Expressway (SPE) (formerly known as DUKE Phase 3) that links MRR2 at Taman Melati to Kerinchi Link at Federal Highway. Alongside the benefit of obtaining a concession, the new expressway would enhance its medium-term orderbook visibility as the group would snap up much of the construction jobs worth over RM3.7b. We expect the construction jobs to contribute RM139m-212m p.a. to Ekovest’s financials for the next three years.
A construction company which owns the highly coveted Duta-Ulu Kelang Expressways. It also
has exposure in construction and property development.
source: UOBKayhian – 23/09/2016