RESULTS

• 3QFY18 earnings below expectations. Ekovest reported 3QFY18 net profit of RM18.6m (-66% qoq, -45% yoy) on revenue of RM220.5m (-26% qoq, -24% yoy). Earnings were dragged down by the construction arm following the completion on DUKE2 in 2QFY18. Cumulatively, 9MFY18 reported net profit of RM113.4m (-1% yoy), represents 67% of our full-year estimate of RM169.4m.

• Construction division slowed down. The division reported revenue of RM107.3m (-41% qoq, -53% yoy) and gross profit of RM25.1m (- 59% yoy). Gross profit margin of 23% (-3% ppt yoy) for the quarter was within our expectations. Lower earnings for the quarter was mainly due to lower works done as a result of the completion of DUKE phase 2 in 2QFY18.

• Property development the key booster to earnings. The division reported revenue of RM72.8m (-8% qoq, +>100% yoy) and gross profit of RM26.4m (+>100% yoy). Profits for the property development division were primarily driven by the EkoCheras development. Going forward, we expect earnings from this division to continue to be robust.

• Toll operations. Toll revenue for the quarter stood at RM40.2m (+11% qoq, +39% yoy) with gross profit of RM31.1m (+78% yoy). The earnings in the division improved, primarily due to the full-opening of the DUKE2 expressway.

EARNINGS REVISION/RISK

• We keep our estimates unchanged for now.

RECOMMENDATION

• Maintain HOLD with a lower SOTP-based target price of RM0.73 (from RM1.04), as we increase our risk-free rate for our DUKE1&2 valuation to reflect the prevailing 10-year MGS yields. We also lowered our PE multiple for the construction segment to 12x (from 13x) and ascribed a higher discount of 60% (50% previously) to our fully-diluted valuation of RM1.82/share, and this implies 6.9x fully-diluted FY19F PE.

Source: UOB Kay Hian Research - 31 May 2018