Ekovest Bhd (8877) is a diversified company with activities spreading across the construction, property, toll operation, and plantation segments. As a prominent contractor and toll highway concessionaire, Ekovest is set for profitability by FY25, benefiting from Johor's vibrant property and construction sectors plus potential gains from the monetisation of DUKE highways and improvements across its business segments. BUY with a TP of RM1.16 based on our SOP valuation.

Ekovest's plan to monetise DUKE Phase 1 and Phase 2 aligns with the resurgence of traffic to pre-pandemic levels. This move could be a significant re-rating catalyst, as the total asset value may surpass the company’s market capitalisation by 2X. In addition, Ekovest had successfully completed the Setiawangsa-Pantai Expressway (SPE), formerly Duke Phase 3, in Nov 2023. With a 53- year concession, SPE is nicely poised to be in the black albeit initial operational losses.

We believe the ongoing RTS (Rapid Transit System) Link project is expected to boost Ekovest's future construction revenue amid an expanding orderbook driven by the RM1.2bn rapid transit system project and potential projects such as DUKE Phase 2A Istana Link and initiatives in Johor.

Ekovest's plantation division via its 100k acre landbank in Johor, acts as another key growth catalyst. The acquisition of a 62% stake in PLS Plantations (PLS) in 2020 has strategically placed Ekovest into the management of oil palm, forest, and notably durian plantations. As Malaysia’s largest durian-focused planter, Ekovest via various initiatives should enjoy the fruits from the growing demand for durians.

In addition, Ekovest’s ongoing corporate restructuring is set to enhance overall efficiency and strengthen its asset portfolio. The merger with IWC-IWH brings a significant strategic landbank of over 4,000 acres in Iskandar Malaysia's Flagship A Zone. Noteworthy details of the restructuring include a reduced acquisition price, resulting in a lower dilution and improved earnings accretion for Ekovest.

Though the company’s current net gearing of 2.26x is deem high, this is easily addressed from the potential disposal of DUKE Phase 1 and Phase 2 that would further strengthen Ekovest’s underlying financial status for new projects going forward.

Source: Rakuten Research - 11 Jan 2024

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