Ekovest confident of Duke growth
Company sees healthy traffic growth on the highway despite MRT, LRT
PETALING JAYA: Ekovest Bhd is confident that the intracity Duke Highway will continue to see healthy traffic growth despite the rise and proliferation of the public transport sector in Malaysia.
The company said it had taken into account these factors in their projections and was confident of growth.
This is contrary to some industry expectations that the best days of highway operators are behind them due to the large amount of money being poured to develop the public transport infrastructure in the country.
“At the moment the traffic is still growing according to our projected figures. Our submissions have considered the mass rapid transit and light rail transit lines, etc. Our traffic forecasts have factored all these into our numbers,” Ekovest managing director Datuk Seri Lim Keng Cheng said.
The company reckons that traffic growth will make a major advance when the phase 2 of the Duke Highway opens.
“Traffic is expected to see a huge jump when Duke 2 opens. But of course once it actually matures we will see single digit growth.
“We are also very confident also because lately there have been many developers who have built their products such as condominiums beside our highway and this will definitely generate more traffic,” he said a the press conference earlier in the week.
“For example in the newly announced Duke2A we are doing interfacing with public transport and that is where the transit oriented development comes into play. There would be park and ride facilities,” he added.
Lim said that the company only built highways that are expected to have a big demand in the years to come.
Duke phase-1 is a 19 km long tolled highway which provides connectivity to the EastWest route of northern KL, connecting the New Klang Valley Expressway in west KL to the KL-Karak Highway in the north and the Middle Ring Road 2 in the east.
Duke phase 2 will add two links to the first phase - the Sri Damansara Link and the Tun Razak Link and is expected to be operational by this year.
Earlier last week, Ekovest got a contract from the government to further extend the present Duke Highway plans or also known as Duke Phase 2A (Duke 2A).
Ekovest will soon undertake the construction of 75.2km of roads under this phase, and that would link the various expressways at a total cost of RM6.32bil.
The company has not yet sorted out the financing part for these projects but the market continues to take the news in stride given that its order book will jump to RM13bil after these contracts are added to their coffers.
Buying interest was seen in Ekovest shares since nine months ago and it has risen some 143% since to RM2.63 on Friday’s close.
The buying was presumably leading up to the time when Duke 2’s new tolled access routes open this year.
“We have already started highway inspection with the highway authorities.
“We will add the Sri Damansara toll in early June (tolled operations). We also target to open the Tun Razak link at the end of the year,” Lim said.
Only one research firm currently covers the stock and that is UOB Kay Hian.
UOBKayHian, which has a “buy” call on the stock with a target price of RM3.13, is of the view that Ekovest would still need to source for funding for the project.
Notably a 40% disposal of the Duke Highway would help shore up its finances ahead of the big construction contract of the Duke 2A.
The company will raise RM1.13bil from the stake sales to the Employees Provident Fund and a special dividend of 25 sen per share or up to RM244mil will be paid out to shareholders from the proceeds.
The exercise will see its gearing reduce to a low of 0.38 times from 1.21 times after the whole corporate exercise is completed.
It will then presumably have to gear up again to undertake these projects.
The company has indicated that it will prefer to use bank borrowings in its press conference last week and did not indicate when asked if it would need to raise funds through new shareholders or placement exercises.
UOB Kay Hian said that assuming an 80:20 debt-to-equity ratio, Ekovest would need to raise RM5.06bil from bonds and the remaining RM1.26bil from internal funds.
“Presently, its cash pile stands at about RM623mil, including the incoming net receipt of RM486mil from the 40% divestment in Duke 1 and 2 (after paying out special dividends).
“Also, the potential listing of Duke 1 and 2 in 2018 could provide additional funding for the group,” UOB Kay Hian said.