Investment Highlights

• We cut our FY19-20F earnings forecasts by 26% and 21% respectively, but raise our SOP-based FV by 26% to RM1.70 (from RM1.35) following Ekovest's failed takeover bid for Iskandar Waterfront City (IWCity). We maintain our BUY call.

• Ekovest's shareholders shot down its proposed takeover of IWCity in an EGM held this morning, with 69% of the total votes going against the proposal. To recap, Ekovest in October 2017 proposed to take over a 62% stake in IWCity (held by shareholders other than common controlling shareholder Tan Sri Lim Kang Hoo via IW Holdings) for RM1.50 cash per IWCity share or one new Ekovest share per IWCity share.

• Our previous forecasts consolidated earnings contribution from IWCity as we assumed Ekovest to successfully acquire 62% of IWCity, turning it into a subsidiary. We now exclude the earnings from IWCity.

• Meanwhile, the higher SOP-based FV is largely underpinned by a lower net debt (in the absence of borrowings raised to fund the takeover and consolidation of IWCity's debt) and the elimination of a 25% discount to reflect the risk premium on valuations arising from the acquisition (which was perceived negatively by the market).

• Ekovest's fundamentals remain solid without IWCity. We like Ekovest for: 1) its strong construction earnings visibility underpinned by a sizeable outstanding construction order book of RM13bil which will keep the company busy for the next 3-5 years; 2) its sturdy recurring income from toll concessions lasting till August 2069; and 3) it is poised to capitalise on the next property upcycle with its landbank in the vicinity of the River of Life with an estimated GDV of RM6bil.

Source: AmInvest Research - 29 Mar 2018