There is no doubt that with the award of another even longer highway (29.8 km) i.e. the now called Setiawangsa-Pantai Expressway (SPE), Ekovest will need to make a cash call for its equity portion. It however did not do that, but instead sold a significant chunk of DUKE Expressway to raise that cash. That seems like a good decision, as it will not want to raise further cash anymore while it gets to work on its new major project i.e. the SPE immediately.
Let's look at where the value Ekovest still has:
- DUKE Expressway where it still owns 60%. That is still valued at RM1.7 billion if we based our valuation on the recent EPF purchase. That by itself is equivalent to Ekovest market capitalisation today. As for its financial performance, already it is profitable since 2014 and we know that traffic is surely to grow. It has its toll revised from RM2 to RM2.50 from late 2015 for normal cars and with that the revenue has improved further. I definitely see much potential in this highway especially when DUKE2 is to be opened in a few months time. Currently, the performance is excluding DUKE2 which is yet to be ready. When DUKE2 is ready, besides having its own toll, it is designed to feed traffic into DUKE1 as well;
- The construction of SPE which is going to be a major RM5 billion project. Assuming that margin is around 8% (based on its past record), it will translate into profit of about RM400 million over the next 3 years towards completion of the project. Besides that, its construction division has other projects, but obviously the elephant in the room is the SPE;
- The SPE itself which will have a concession of 53.5 years. I am not sure how attractive is this new highway, but it does go through the most busiest of roads. From UTAR in Taman Melati, it passes though the very busy Jalan Jelatik, towards Bandar Malaysia (do not want to discuss about the controversy, but we know that HSR and major development will be there with huge incentives). The road will then lead pass Mid Valley and ends at SPRINT highway. With DUKE Expressway, SPE and SPRINT - together, I will call it MRR 1-1/2 - i.e. in between the old MRR and the very heavy traffic MRR2. RM5 billion seems like a huge amount for a highway, but again it is a long highway (mostly elevated) with a very long concession. SPE feels like DUKE1 and DUKE2 combined and perhaps pass a very much strategic places in KL;
- It has several property projects namely EkoCheras, EkoTitiwangsa, The River of Life project and another one in Danga Bay. These probably are not so exciting as compared to other developers' but still worth some few hundred million valuation especially when the landbank is situated in strategic locations.
If one is to be afraid of its high debt, it is not much to worry as the bulk of the loan is for DUKE Expressway which is already ring-fenced. Other than that, they are manageable.
I do not want to go too much into details, but let's look at valuation - its current market cap is equivalent to the valuation of 60% of DUKE Expressway. SPE seems promising as its length is DUKE Expressway (i.e. DUKE1 and 2 combines) - it seems to be hence 1.67x of Ekovest ownership of DUKE Expressway. Its construction arm is to make good profits in the next few years due to the secured orderbook. Its properties holdings are in essence decent.
At its current price of RM1.93, you are basically paying for an equivalent of its 60% ownership in DUKE Expressway. But, in addition there is the SPE, construction and property divisions. How much you would value those?
nickyesh
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2016-09-30 00:19