Investment Highlights

• Founded more than 30 years ago, Ekovest specializes in the construction business, having completed projects worth more than RM15bil to date. The company embraces value engineering and innovative construction designs, enabling it to continue securing mega infrastructure projects from both the public and private sectors. Besides, the company is also engaged in property and infrastructure concession businesses (i.e. toll concession of DUKE expressway).

• Dubbed the “urban road connector” through its highway flagship DUKE, Ekovest plans to add 10 potential alignments in the future to cater to the growing traffic, ensuring seamless commuting within Kuala Lumpur. Ekovest’s earnings visibility in the coming years remains upbeat underpinned by the following factors:

1. Strong outstanding order book which currently stands at an all-time high of RM14bil, keeping it busy for the next 3–5 years. Infra-related jobs like the construction of the SPE, Pan Borneo Highway and DUKE2A represents the bulk of its sturdy order book (~85% of total order book).

2. Steady recurring incomes from its toll concession activities, i.e. DUKE 1 and 2, for a concession period up to August 2069. The lucrative concession business has also attracted institutional investors like the EPF which currently owns 40% of the concession business.

3. It is well positioned to benefit from the next upcycle in the property market via more aggressive property launches from its prime strategic land banks along KL River City.

4. Meanwhile, we believe the market has over-reacted negatively to Ekovest’s proposed acquisition of IWCity. This is reflected in its share price trading at a steep ~50% discount to our base-case SOP valuation of RM1.80.

• We project its FY18–19F earnings (inclusive of earnings from IWCity) to grow by 32%–62% underpinned by: 1) strong outstanding construction order book of RM14bil; 2) strong earnings visibility over the coming years from the sizeable outstanding order book; 3) sturdy recurring income from toll concessions lasting up to August 2069. For FY18F, based on our projection, its construction division will contribute 80% of overall earnings, with the remaining 10% each from toll concession and property divisions.

• We initiate coverage on Ekovest with a BUY call and FV of RM1.35 based on a 25% discount to our SOP value.

Source: AmInvest Research - 8 Feb 2018