On Our Radar 13 August 2015 Rating Fair Value Ekovest Berhad Last Price RM0.935 Kenanga Trading Sell RM0.800 Hold Your Horses Consensus N.A. N.A. By the Kenanga Research Team / [email protected] INVESTMENT MERIT Stock Information • Share prices has fallen 17%, since our last TRADING BUY recommendation on 31- Stock Name EKOVEST BHD Oct-13 (TP range from RM1.17-1.31), titled “ A Triple Play? ” before peaking at RM1.40 CAT Code 8877 on 30-Jul-14. YTD, its share price has eroded by 13%, 4% more than KL Construction Industry Engineering&Construction Index’s 9% decline. We believe the stock price has lost momentum due to: (i) lack of Industry Sub-sector Building&Construct-Misc fresh orderbook replenishment for FY15, (ii) consolidated losses arising from acquiring YTD stock price chg -12.62% the remaining 30% stake in DUKE, and (iii) lowering of dividend payout given to Market Cap (RM m) 799.84 shareholders. Issued shares (m) 855.45 • Acquired 100% equity interest in DUKE highway. EKOVEST has completed its 52-week range (Hi) 1.41 rights issue exercise in Jun-14 and used the proceeds to acquire the remaining 30% 52-week range (Low) 0.935 equity interest in DUKE from MRCB. This resulted in a plunge in FY14 net profit due to 3-mth avg daily vol: 39056.06 losses of RM33.9m from the non-controlling interest unit. The current DUKE highway Free Float 24% carries an average daily traffic of 130.0k vehicles. This exercise should yield positive Beta 0.83 result as EKOVEST will have full control over its operations and management. Altman’s Z-score 1.64 • Orderbook at RM2.0b. The total orderbook of RM2.0b is mostly for DUKE Phase 2 and Phase 1 of River of Life project in Kuala Lumpur. The RM1.18b worth of DUKE Major Shareholders Phase 2, which was secured on Jan-14, is currently 45% completed. While guidance of Kang Hoo Lim 20.19% remaining orderbook is not available, we estimate that the group has some 40%-50% Kota Jayasama Sdn Bh 20.16% remaining out of its total orderbook, which offers 1.5 years visibility. The DUKE Phase 2 Ekovest Holdings Sdn 12.19% project, which is expected to be completed and opened by 4Q16, is expected to provide earnings visibility from FY17 onwards. Financials • Secured Approval-in-Principle for DUKE Phase 3. The c.35km length of DUKE FYE June (RM’m) 2014A 2015E 2016E Phase 3 will cover areas such as University Tunku Abdul Rahman, Wangsa Maju, Revenue 229.1 425.3 509.4 Setiawangsa, Ampang, the Tun Razak Exchange and Bandar Malaysia development EBIT 138.0 119.0 168.1 corridor and Kerinchi. On 10-Aug-15, the digital Edge Weekly reported that EKOVEST Net Profit (NP) 47.1 13.1 50.2 is in talks with 1Malaysia Development Bhd (1MDB) on the realignment of highway, EPS (sen) 7.2 1.5 5.9 whereby a 2km section will run along the border of Bandar Malaysia in Sungai Besi. BV/Share (RM) 1.69 1.28 1.28 Conceptually, this should provide better accessibility and higher traffic growth from PER 12.9 60.9 15.9 Bandar Malaysia. Price/BV (x) 0.6 0.7 0.7 Net Gearing (x) 0.1 0.1 0.1 • However, significant earnings contribution before FY17 is unlikely. The financing DPS (sen) 1.0 1.0 1.0 method of this c.RM3.57b project is still unknown while details of project Dividend Yield (%) 1.1% 1.1% 1.1% commencement remain vague. We reckon it is likely to be financed via issuance of Islamic medium-term notes by the SPV. This project duration is expected to be 3.5 Quarterly years. We believe that DUKE Phase 3 should garner investors’ interest in the long run Financial Data 1Q15 2Q15 3Q15 as it will catalyse the overall future EKOVEST’s earnings growth. However, at this Revenue 88.9 104.9 125.3 juncture, we have not built this into our estimates as any significant earnings PBT 2.2 4.5 7.5 contributions before FY17 is unlikely. Net Profit (NP) 1.4 3.2 5.2 • Property unbilled sales of RM588.0m. The major portion of the unbilled sales is from EPS (sen) 0.2 0.4 0.6 EkoCheras (GDV RM1.6b) and expected to last until 2017. Also, EKOVEST has EPS Growth (QoQ) -97.1% 117.6% 64.9% launched Phase 1 of EkoTitiwangsa (GDV RM202.0m) in Jun-15 with some 40% take- Revenue Growth 93.8% 18.0% 19.5% up rate. In terms of upcoming launches, EKOVEST is looking to launch another 3 (QoQ) projects over the next 18 months, with a total GDV of RM2.4b (EkoGateway RM1.9b, PBT Margin 2.5% 4.3% 6.0% EkoQuay RM210.0m, EkoPark Place RM320.0m). This should contribute to the Group’s earnings for next 2-3 years. Peers PER Div. Yld Mkt Cap Comparisons (FY16) (%) (RM’m) • Fairly valued. We introduced our FY15-16E earnings with higher revenue assumption WCT 9.0 3.8 1,440.6 from recognition of progressive unbilled property sales and DUKE Phase 2 project in MITRA 9.5 3.7 713.0 FY16. It will take a while for the potential earnings accretion of the acquisition of the remaining 30% stake in DUKE to bear fruits as traffic growth numbers remains GADANG 5.0 1.5 293.6 unexciting and thus, the rights issuance used to fund this acquisition will be a drag on Average 7.8 3.0 815.7 the near-term EPS and ROE. Hence, our TP is revised downwards to RM0.80 (from Ekovest 15.9 1.1 799.8 RM1.17-1.31 previously), based on FY16E PER of 13.6x (-0.5SD @ 5-yr average), FBMKLCI 13.8 3.7 958.4B implying that the stock is fairly valued at this juncture. We may revisit the stock pending fresh updates on DUKE Phase 3 commencement date. Our TP which implies FY16E PER of 13.6x is already at the upper band of mid-cap contractors range of 10.0x-14.0x, implying that a lot of the announced positives have been priced-in and requires stronger earnings accretion to re-rate the stock further. PP7004/02/2013(031762) Page 1 of 3 Ekovest Berhad On Our Radar 13 August 2015 Daily Charting – Ekovest Berhad Comment: EKOVEST has been on a downtrend after reaching About the stock: its peak on Aug-2014 at RM1.44. Recently, due to the sell-down Name : Ekovest Berhad in the local bourse, the share price has broken down from its Bursa Code : EKOVEST strong support-turned-resistance level of RM0.98 (R1) to settle at the -1SD regression level. In tandem with the tepid trading CAT Code : 8877 volume, key indicators such as Stochastic and RSI are also posting bearish-biased outlook as reflected in their negative Key Support & Resistance level trends, with the former already in oversold territory. We reckon Resistance : RM0.98 (R1) RM1.05 (R2) RM1.09 (R3) that with the poor market sentiment and negatively biased Support : RM0.87 (S1) RM0.75 (S2) RM0.69 (S3) technical picture, the share price would likely trend south towards Outlook : Bearish the RM0.87 level in the near-term. Source: Kenanga Research CORPORATE STRUCTURE BUSINESS OVERVIEW • Established in January 1985, Ekovest is one of the contractors in Malaysia. It is involved in a wide range of business activities related mainly to civil engineering and building construction. • Ekovest was involved in several large prestigious projects which include University Malaysia Sabah, Kuala Lumpur Sentral station, KLCC Fit-Out Package, Labuan Financial Park, KLIA, TheFederal Administration Capital of Putrajaya, Universiti Tun Hussein Onn Malaysia and DUKE Highway. • Ekovest has diversified into infrastructure (through 100%-owned DUKE highway) and property development. BUSINESS SEGMENTS • Construction operations. Construction segment is the biggest contributor to EKOVEST’s revenue which accounts for 60% of its total revenue in FY14. • Property development. The entire landbank in northern Kuala Lumpur is expected to deliver an estimated GDV of RM3.24b over the next 10 years. • Investment holding. This division contributed 1% of its total revenue in FY14. • Toll operations. This division is the second major contributor to EKOVEST’s revenue, accounts for 39% of its total revenue in FY14. PP7004/02/2013(031762) Page 2 of 3 Ekovest Berhad On Our Radar 13 August 2015 This page is intentionally left blank. This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees. Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies. Published and printed by: KENANGA INVESTMENT BANK BERHAD (15678-H) 8th Floor, Kenanga International, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia Chan Ken Yew Telephone: (603) 2166 6822 Facsimile: (603) 2166 6823 Website: www.kenanga.com.my Head of Research PP7004/02/2013(031762) Page 3 of 3 .