EKOVEST (8877) : Doing Great & Ready To Shine, Are You Ready? (Part 1)

EKOVEST (8877) : Doing Great & Ready To Shine, Are You Ready? (Part 1)

Ekovest has come under the spotlight when the following news were shown in major local newspapers:
EPF buys 40% of Duke operator for RM1,130m
Ekovest sell 40% stake in DUKE operator to EPF for RM1,130m

The following questions are mostly asked by many:
1. What is the total valuation for Kesturi (Duke 1 & 2 highway builder & operator)?
2. How much cost has Ekovest invested in Kesturi so far?
3. How much profit can Ekovest make from this disposal of 40% shares in Kesturi?

Let's do a simple calculation to find out:
Table 1: Calculation for Gain on Disposal     RM('000) 
Total Valuation for Kesturi (40% = 1,130m, 100% = 2,825m)      2,825,000
Total cost of investment in Kesturi by Ekovest (refer Table 2)         918,280
Total Profit for 100% disposal      1,906,720

Gain on Disposal 40% shares = RM762,688,000
Ekovest is expected to pocket Gain on disposal of 40% subsidiary (Kesturi) with rocky RM762,688,000.

Upon completion of disposal, Ekovest will receive CASH RM1,130,000,000

This is awesome if compared the whole market capitalization of Ekovest at yesterday closing:

855,448,000 shares x RM1.92 = RM1,642,460,160

This is my feeling when I heard the news :)

Special Note: The Islamic Medium Term Notes of RM1.7 billion is under Kesturi, so the debt is taken care of within Kesturi. I will disclose detailed balance sheet of Kesturi in my next article.
1. Ekovest bought Kesturi when only Duke 1 was operating
2. After award of Duke 2, Kesturi took Islamic Term Notes to finance the construction of Duke 2
3. The machine is running by itself & no loan was raised at Ekovest.

Announcement from Ekovest:

The Board of Directors of Ekovest wishes to announce that its wholly-owned subsidiary, Nuzen Corporation Sdn. Bhd. (“Nuzen”), has today entered into a binding term sheet with EPF to dispose a 40% equity interest held in Konsortium Lebuhraya Utara-Timur (KL) Sdn. Bhd. (“Kesturi”) to EPF, comprising of the following:-

  1. 2,000,000 ordinary shares of RM1.00 each and 18,000,000 redeemable preference shares of RM1.00 each held in Kesturi; and
  2. 1,440,400 new ordinary shares of RM1.00 each to be issued by Kesturi at an issue price of RM100.00 each upon the completion of a proposed capitalisation exercise to be undertaken by Kesturi of the outstanding 3,601 Series B Redeemable Preference Shares in the capital of Kesturi which is currently held by Ekovest Construction Sdn. Bhd. (a wholly-owned subsidiary of the Company),

collectively representing 40% of the issued and paid-up share capital of Kesturi, for an aggregate cash consideration of RM1,130 million.
Source: Announcement by Ekovest at Bursa Website

Share Structure of Kesturi:

How Much Has Ekovest Invested in Kesturi?

Table 2: Total Cost of Investment by Ekovest in Kesturi      RM ('000) 
Share Swap Considerations for 70% in Kesturi         330,180
Cash Considerations for 30% of Kesturi from MRCB         228,000
Capital injection via 3,601 B Series Preference Shares in Kesturi         360,100
Total cost of investment in Kesturi         918,280
Souce: Please click on links for sources

Is the Basis of Valuation RM2.8 Billion Justified?

Please read an old news here:
The price tag of RM230mil for Duke translates to a valuation of approximately 19 times enterprise value (EV) to earnings before interest, taxes, depreciation and amortisation (EBITDA), which is in line with recent toll acquisitions,” said an analyst.

Back in 2010, UEM Group Bhd and the Employees Provident Fund had acquired PLUS Expressways for RM23bil or RM4.60 per share.

When PLUS Expressways was privatised, the valuation was also around EV/EBITDA of 20 times,” said one property analyst.

Source: MRCB sells Duke Highway

Answer is obviously YES, in fact it is still undervalued!!!

That's It? What Next?

The above projection does not incorporate the following:

1. Valuation for Duke 3 Highway, which is expected to complete in 3.5 years
2. Full Valuation for EkoCheras Mall, which is expected to open in January 2018

I will discuss more on all the above projections & valuation in my next few articles, Part 2 & 3.

Please stay tune.

EKOVEST (8877) : Doing Great & Ready To Shine, Are You Ready? (Part 1)