OVER the past one year, Ekovest Bhd’s share price has jumped 126% to a record high of RM2.21. The rally in the price of its warrant has been even stronger, Ekovest-WB, leaped 348% to a high of RM1.19 last week. Ekovest’s phenomenal share price performance can be largely attributed to the disposal of a 40% stake in its highway concession business under Konsortium Lebuhraya Utara Timur (KL) Sdn Bhd (Kesturi) to the Employees Provident Fund for RM1.13 billion.

This includes the first and second phase of the Duta-Ulu Kelang Expressway (DUKE), and values the highway assets at RM2.83 billion.

In contrast, Ekovest itself currently only has a market capitalisation of RM1.85 billion, based on the closing share price of RM2.16 last Wednesday. Meanwhile, the warrants closed at RM1.16 apiece. With a strike price of RM1.35, the warrants are trading at a premium of 16.2% based on their close of RM1.16.

Note that the warrants only expire in mid-2019, almost three years from now. These American warrants can be exercised anytime.

Looking ahead, is there more room for upside?

The biggest upside for Ekovest is still the disposal of the highway assets, which may not be properly priced in yet.

The RM1.13 billion proceeds will be used to pare down borrowings and pay dividends. Interestingly, Ekovest had RM2.18 billion in borrowings as at June 30. However, RM1.74 billion is for the Islamic medium-term notes tied to Kesturi.

Hence, Ekovest’s non-highway borrowings are only RM437.4 million. In contrast, the group has RM189.7 million in cash. Hence, Ekovest should have plenty of cash left over from the RM1.13 billion proceeds to pay dividends.

Note, a sizeable dividend payout would devalue the warrants past the ex-date.

Besides the disposal, the group continues to secure more work beyond the highway. Last week, Ekovest bagged a RM255.5 million contract from Dewan Bandaraya Kuala Lumpur for improvement and beautification works.

Note that the group has an order book of about RM2 billion.

Against this backdrop, the group’s earnings have also been on the rise. For the first half ended June 30, revenue rose to RM793.58 million, up 81.2% year on year. As a result, net operating profit shot up to RM156.6 million, almost eight times the previous year. Net profit rose 54.9% y-o-y to RM156.4 million or 18.29 sen per share. This values the group at 11.8 times earnings.

On a separate note, the group’s executive director and co-founder, Khoo Nam Seng has been disposing of his shares and warrants over the past month. He has sold over 1.18 million shares, reducing his holdings to 5.62%. He has ceased to be a substantial holder of the warrants.

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