Ekovest - 3QFY18: Below Expectations

Date: 
2018-05-31
Firm: 
UOBKayHian
Stock: 
EKOVEST
Price Target: 
0.73
Price Call: 
HOLD
Last Price: 
0.355
Upside/Downside: 
+0.375 (105.63%)

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

Discussions
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CentnSenses

Eko's NOSH is 2,139.2m shares. But also note that Eko has 9.38% of its own shares. So, the effective NOSH is now 1,938.54m shares.

Eko's AR2017 valued its 60% stake of Duke 1&2 at $1,695m. Its latest Q3 report valued this 60% above $2,000m. So, I guesses the worst case is $1,695m (note that this is same as EPF's 40% stake's cost price bought in Dec2016. Would government let EPF making a loss?).

So, the government should paid Eko at least $1,695m for Duke 1&2 take over.
Duke 3 although not yet completed, its cost already absorped fully by Eko at about $5,000m. If concession agreement is effective, although Duke 3 is not completed and not yet started operation, the government should still pay a little more than the cost price. However, we take it as government only paid the cost price on Duke 3. So, no gain and no loss for Duke 3.

In conclusion, we are talking about Eko's concession asset liquidation here which will be the main theme for Eko within the next 3 years. The net effect is Eko get at least $1,695m cash from government, or effectively 87.4c/share. Now this is cash (at its present value), do you still want to discount the cash from its norminal value!??

So, any valuation below 90c/share is utterly nonsense!

2018-06-12 01:20

qqqq_ss

Pinepac NTA 1.37, now 0.28 ? https://klse.i3investor.com/financial/QoQ/quarter/1902/31-Mar-2020_1533977188.jsp

2020-06-15 21:18

KAQ4468

Next year RM1.20

2020-06-15 23:06

stainlyho37

collect as many as possible!!...recovery with support by Duke highway !!!! a hidden gem ..

2021-03-01 16:19

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