The building of EKOVEST & What are the plans ahead for Ekovest

Making strides: Lim with the KL River City project, which he envisions to turn into a thriving community like Yarra of Melbourne.

Datuk Seri Lim Keng Cheng has been working alongside his uncle, the billionaire Tan Sri Lim Kang Hoo, for decades. But this active businessman is drawing attention on his own now.
DATUK Seri Lim Keng Cheng was born in Jalan Gombak and studied at Setapak High School. Now, he has his eyes set on transforming the Sentul-Gombak-Setapak area, which he says is still underdeveloped. He aims to make the area into a liveable place like Melbourne.
This 54-year-old Sentul homeboy (who goes by the initials KC), the managing director of Ekovest Bhd, has rebuilt a Chinese primary school and a high school there.
Until recently, KC has not made himself distinctively known to the corporate world. His name did not pop into view when the media wrote about Ekovest and Iskandar Waterfront City Bhd (IWC). Only Tan Sri Lim Kang Hoo, the Ekovest executive chairman and KC’s uncle, was mentioned.

Yet, KC is the driving force behind Ekovest, which is Kuala Lumpur City Hall’s project delivery partner for the River of Life project and DUKE highways.

Early victory: Lim with a picture of a project he undertook in his early years in Sabah. He says he and his uncle Tan Sri Lim Kang Hoo made their first RM100mil while they were in Sabah.

He had also helped to build up Johor-based Tebrau Teguh Bhd (its name was changed to IWC in August 2014), which is in property development, construction and property management services.
Indeed, KC has been in the construction, property and infrastructure line for more than 30 years.
“I am a business partner of Tan Sri Lim Kang Hoo. Before Ekovest, we were already doing business together,” declares KC.
“But since he is my uncle and executive chairman of Ekovest, and holds 32% stake in the company, while I have only 6.12%, I should give him due respects,” adds KC at the outset of a recent interview with Sunday Star.
Yes, for too long, this trilingual and energetic man who has worked alongside Kang Hoo quietly to jointly build up their companies, including Ekovest and IWC. However, many are not aware of this fact.

KC’s role in Ekovest

Acknowledgement of KC’s role in Ekovest is stated in its latest company profile. Under the section Capable Management Team, the company writes: “Executive chairman Tan Sri Datuk Lim Kang Hoo and managing director Datuk Seri Lim Keng Cheng have been managing the company since (its) inception”.
Venturing into Sabah together with his uncle while he was 25 in the early 1980s, this neat-looking man proudly claims he was responsible for the building infrastructure in Felda Sahabat, twice the size of Singapore.
“We made our first RM100mil in Sabah,” says KC, as he shows photographs of the Sabah projects in his office that carry his footprint.
“I was born here, in Batu 4, Jalan Gombak, in a house with number 229A. However, there was no road linking my old house to the main road then. Kang Hoo also lived there then.
“The Sentul-Gombak-Setapak area is still an underdeveloped area. I want to transform this into a liveable place. This is why I want to do a lot of development and CSR work here,” says KC in Ekovest’s office, which stands obliquely opposite the area where he was born.
“The old house is still there. We – including Kang Hoo – still celebrate Chinese New Year there. But now, we have already built a road to connect with the main road,” adds KC as he flashes his handphone to show the location of his old house.
Due to his humble background and vast experience in infrastructure, KC says he could plan cost efficient and workable highways.
In this regard, he has contributed significantly to the success of the Duta-Ulu Kelang Expressway (DUKE). He is also instrumental in convincing Kuala Lumpur City Hall (DBKL) to grant further concessions to Ekovest to extend the DUKE expressways, named as DUKE-3.
DUKE-1 and DUKE-2 are providing alternative routes for road users and have served as an efficient traffic dispersal system in and around Kuala Lumpur to relief traffic congestion.
Toll collection and recent sale of a 40% stake in DUKE-1 and DUKE-2 have boosted the earnings of Ekovest and this is reflected in the rise of its share price. On Thursday, Ekovest share closed at RM2.35 – which was at a six years’ high.
Another of KC’s passionate project is the River of Life project, which involves the improvement of water quality and beautification works along the river from Gombak to the Kuala Lumpur city centre.
Ekovest, which has land-bank and property development projects such as EkoRiver Centre and Ekovst Tower along the river, has on its plate a total GDV of RM7.8bil when all the planned projects are completed.
“My vision is to convert the entire run-down area into a river city with waterfront property development and leisure activities. It will be a place for people to work, live, jog and cycle, cruise in water taxi like the Yarra River of Melbourne.
“Our vision of creating a world class river front development along Gombak River is gaining momentum and we are looking to deliver some of the most vibrant commercial and residential properties in this area.”
According to KC, multi-billionaire Kang Hoo – ranked as one of the top 30 tycoons in Malaysia by Forbes Asia in 2014 – is focussing his attention on IWC and the development of Bandar Malaysia.
KC is charged with taking care of Ekovest.
In a two-hour interview, KC talks enthusiastically about Ekovest projects, his vision and education. Below are excerpts:
Q: What is the latest on DUKE highways? Why are these highways so successful?
A: We have a DUKE Master Plan, with a total of ten functional and cost-effective highways. We are developing the third one. Our planning team will keep submitting proposals on future DUKE projects as and when the need arises.
Within this plan, we provide one tolled road system on top of an existing council road to give an alternative route for drivers who are willing to pay to avoid traffic jams.
We have studied the benefits to be enjoyed by road users and planned according to their needs. This is the success story of our DUKE.
The DUKE concept was based on a study done by JICA (Japan International Cooperation Agency) in the 1980s to fill in the gap in highway connectivity. We submitted our plan to DBKL and got the approval.

There are many highways all over Kuala Lumpur, but they are not connected. We fill in this gap and build “highway connectors”.
But we also innovate to add value to our highways. For example, we are building DUKE-2’s integrated park-and-ride facility at the Segambut Toll Plaza that will allow DUKE’s users to park their cars and hitch a KTM ride at a brand new KTM (train) station, which is two stops away from KL Sentral.
Known as Segambut Rest and Service Area, this park-and-ride complex will be able to house 4,000 cars. This will ensure fewer cars move into and out of the city centre. Hence, it will reduce traffic congestion. (The new KTM train station is expected to be completed in 2018)
Your property development projects appear to concentrate in the Sentul area.
I was born here. My original home is still here. There was no access road from Jalan Gombak to my old house, yet the postman could find it.
My father passed away when I was 14 years old. My study was funded by Lee Foundation. For this reason, I have rebuilt the Lee Rubber primary school building in this area. From road construction and property development to the River of Life project, I hope to create a liveable Sentul-Gombak-Setapak region The whole city will be like Melbourne and Vancouver.
All these years, you have been overshadowed by Tan Sri Lim Kang Hoo, although you are a property man in your own right. Is this observation accurate?
Ekovest, with total staff of 2,000, is managed by a committee. No single person makes the decision.
My uncle Kang Hoo holds a 32% stake in the company while I have 6.12%. As he is my uncle and the company’s executive chairman, I should give him due respects. When my father died, the small family construction outfit run by him was taken over by Kang Hoo. I started helping him when I was in high school.
When I was 25, we went to Sabah together and worked on the infrastructure of Felda Sahabat. In Lahad Datu, we provided 2,500 jobs to the gun-wielding unemployed and helped solve the social problems there.
While in Sabah, we took over a RM2 company called Ekovest. That’s where we made our first RM100mil for Ekovest. After that, we went to Labuan to build the offshore financial centre. Kang Hoo and I were business partners before Ekovest, and are still partners.
Now, Kang Hoo places his focus on IWC and Bandar Malaysia investment, while I take charge of Ekovest projects.

What are the plans ahead for Ekovest?
We will keep inviting institutional funds, such as EPF (Employees’ Provident Fund), to be our investors and strategic partners. These partners will stay and grow with the company. They will become our strong pillars.
Recently, we let go of a 40% stake in Duke-1 and Duke-2 to EPF for RM1.13bil. This will pave way for future partnerships.
We will do the same for future DUKEs and KL River City project. The funds obtained will be used to reward shareholders in the form of special dividend and finance new ventures.
(Ekovest has announced that it is distributing a special dividend to shareholders from the proceeds of its sale to EPF).
We have also set the target to become the top 30 listed companies on Bursa Malaysia within five years. This means that our market capitalisation has to hit RM10bil within five years, from the current RM2bil. It is achievable based on our growth.
But while doing so, we must maintain our policy to give out dividends every year. Since 1993, we have been profitable. This is something we are proud of.
We also believe in doing CSR work. We have given Chong Hwa Independent High School a total of RM2mil and next year another RM1mil. For the Government’s SM Chong Hwa, we have given RM3mil.
How do you see Ekovest’s future financial performance?
We are doing very well. Our order book is very healthy, with total outstanding external order book of RM4.89bil as at November 2016.
For the current financial year, we won the biggest-ever project (DUKE-3) worth RM3.74bil, with a 50-year concession to collect tolls. That means our construction segment will be busy for the next three and a half years.
In November 2016, we have also been awarded two contracts to improve and beautify the Klang and Gombak rivers.
The results for the year ending June 2017 will be much better. You can see from our revenue growth. It’s almost doubled in 2016. There is also vast improvement in net profit. (Ekovest posted a revenue of RM794mil and net profit of RM155.4mil for the year ending June 2016, compared to a revenue of RM438mil and net profit of RM18.5mil in previous year).

Does the high-level connection of Tan Sri Lim help in any way to obtain projects?
Ekovest is run professionally.
Based on our technical expertise and our ability to see what people need, we won these public transport projects. There is no objection from people when our projects are displayed to gauge the public reaction. This is because our projects fill in the gap and we collect toll to help future projects.
It is not political connections that help us get jobs. We think out of the box using blue ocean strategy, hence, we came out with the master plan for DUKE highways.
If it was political link, we would have risen sky high long ago.
We will self-create and generate income. In DUKE, we carry out the planning and infrastructure for the government, create income for future highways.
Nowadays, it is impossible for you to bulldoze through projects. You need to do surveys and carry out public engagement. No one has objected to our DUKE highway projects so far.

What is your vision for Ekovest?
I want to create a sustainable city, not just high-rise only. I want to innovate to create value. I also want other people to learn from us when I give media interviews.

Is Ekovest investible? - felicity

from felicity.
http://www.intellecpoint.com/2016/11/is-ekovest-investible.html
After the article on Ekovest a month ago, its share price has since rose from circa RM1.95 to now around RM2.18.

(Before I deliberate on this topic, I would like to insist, I have always been very careful when putting my positive comments on a company as it has to be a long term value stock. My definition of a long term value stock is always about one potentially can be putting away his/her money for years as investments and the fundamental of the company has to be of creating value to its investors. Value investment is always a subject of debate as is it just an undervalued stock or is it also a very good company which will consistently provide better value than other companies among its peers. In my perspective, it is always more of the latter where it will continuously provide investment value, than the former i.e just cheap stocks but can also be poor in terms of business performance.)  

Ekovest to me is putting itself to be a company with recurring revenue from its assets although at this moment, it is still more of a construction company. I will put the composition of its construction:property:toll businesses at the moment to be as follows 60:15:25. (I know, I am aware of how I described Gadang)

In 3-4 years down the road though, Ekovest is going to be a very different company. That is very important to me as its composition will be more like 35:15:50 in the order of construction:property:toll. Why?

Its toll business itself may potentially be even bigger than LITRAK. As it is, for DUKE 1, after its 6th to 7th year of operations it has started to register good profits (cashflow wise, would be even better). By the time DUKE 2 and SPE becomes operational, it could be a very substantial toll operator than a construction outfit. (I would be even more amazed if its construction arm is to be just as big, which means that it will be getting more jobs)

Yesterday, in a Q&A session, the CEO of EPF put down that for his private equity investments, he is looking at IRR of between 10% to 13%. He further mentioned,

“If you look at the types of assets that we have been investing in, they would typically have an IRR range of between 10% and 13%, depending on the risk profile of the assets, the tenure of the concessions and the security of cashflows

“For instance, a power plant asset which has secured power purchase agreements would be in the lower range, while something that has a bit more revenue volatility would be in the higher range,”

I will take it that for DUKE as it has some volatility, EPF is probably looking at around 11%. In today's low interest rate environment, where US is offering almost zero, 11% is very high. I would not mind putting my money in stable investment which returns 11% IRR.

From that perspective, I will take the positives and negatives - if I am an investor of Ekovest, it is willing to let go 40% for 11% IRR, this is a negative. I am sure that it can get better deals elsewhere.

From a positive standpoint, Ekovest still has 60% of that asset which it stands to gain 11% IRR at valuetion of (RM2.825 billion) still for more than 40 years (in fact more, as a concession investment such as DUKE has a definite concession period, hence when doing a DCF it will take into account that definite period - not indefinite period in which case they use terminal value). So for any investors, even putting money for DUKE already has his money worth with very strong IRR. For me, if the IRR of 11% is right, Ekovest's 60% ownership could translate into at least a good multiple of what the EPF is paying for as concession assets has good value - just look at LITRAK which still enjoys 16x PE despite its concession to remain around 15 years?

And as mentioned in previous article, what about Ekovest's other assets such as SPE, its construction business and property projects? They must have worth some good numbers as well.

Is it investible though?

Now, after the above, is Ekovest an investible stock? There are several benchmarks to a company. Firstly, even if it is to make money, bring in good cashflow (remember, some red chips (China's) companies showed profits, cashflow but without or little dividends) - would the management be ready to share part of it in the form of dividends? Here are the track record of the company's dividend payment since 2000.

Dividend and net profit of Ekovest from FY2000 to 2016

I am quite comfortable as although for certain years, its dividends to net profits dropped (2012 - 2013) - that, I believe was mainly due to the company needed funds for the acquisition of DUKE assets. Ekovest does pay dividends every single year during the period in review.

The management has mentioned of its willingness to pay some of its return of RM1.13 billion to shareholders. That has yet to be announced. If I am to read its cashflow requirement, the amount should not be too low - i.e. less than RM100 million.

Another thing which was of concern to me was that the free float for Ekovest was way too low for some time - somewhere in the range of 5% to 10% as it is still a very tightly held stock - through Lim Kang Hoo's family, Haris Hussein (brother of Hishamuddin Hussein) and an old partner of Lim Kang Hoo, Khoo Nang Seng. In the last few months, the two groups except for Lim Kang Hoo has disposed off some of their shares. One may think that they are selling early which is a bad sign, but that has also translated into more liquidity for the market. (Frankly, I do not know how to read this.)

Ekovest has not been a much followed stock because funds do not like low liquidity stocks especially the sell side brokers. They are not able to introduce much to their clients as there are not much stocks to buy. That to me is changing for Ekovest. If I am to read right, some if not all portion of Haris Hussein's sale 6 months ago went to several funds.

As it is still at good value, I see the funds coming in a bigger way - as they are becoming visible for the bigger guys. That's how I see it as it is surfacing some of its value.

Ekovest-moneytising future

BY selling a 40% stake in Konsortium Lebuhraya Utara-Timur (KL) Sdn Bhd (Kesturi) to the Employees Provident Fund (EPF), Ekovest Bhd is expected to receive RM1.13 billion cash.
A sum of RM921 million will be paid upon completion of the sale. When the certificate of practical completion for the Duta-Ulu Klang Expressway (DUKE) Phase 2 is issued, the EPF will pay another RM60 million. The remaining RM149 million is subject to the achievement of the pre-agreed targeted returns in the event of certain exit scenarios.
In short, RM981 million will go into Ekovest’s coffers soon.
In an earlier interview with The Edge, Ekovest managing director Datuk Seri Lim Keng Cheng revealed that some of the proceeds would be set aside for a special dividend to reward shareholders. He, however, stopped short of specifying the quantum.
Ekovest’s borrowings stood at RM2.19 billion as at June 30, with a net gearing of 1.67 times.
UOB Kay Hian analyst Ridhwan Effendy says in a research note that the disposal helps unlock the value of a vital urban traffic dispersal system. He  points out that transaction amount implicitly values the expressway at RM2.82 billion, compared with Ekovest’s market capitalisation of just RM1.69 billion.
Tan Sri Lim Kang Hoo is the single largest shareholder of Ekovest with a 32.38% stake, followed by Datuk Haris Onn Hussein, the brother of Defence Minister Datuk Seri Hishammuddin Hussein, with 13.84% via Kota Jayasama Sdn Bhd.
Assuming that the proceeds will be used proportionately for the repayment of debt, reinvestment and payment of the special dividend, one-third of RM981 million, or RM327 million, would be for the latter.
With his 32.38% stake, Kang Hoo would stand to receive RM105.88 million in dividends,  and Haris, RM45.3 million.
Kang Hoo has been in the news quite often since he clinched a deal with 1Malaysia Development Bhd to take part in the development of Bandar Malaysia in Kuala Lumpur.
The tycoon owns Credence Resources Sdn Bhd, which holds a 60% stake in Iskandar Waterfront Holdings Sdn Bhd (IWH). IWH has formed a joint venture with China Railway Group Ltd to acquire a 60% stake in Bandar Malaysia Sdn Bhd for RM7.41 billion, which will be paid in several tranches.
Kesturi is the concession holder of DUKE. In August 2004, the company obtained the 34-year concession, which commenced in August 2005. In December 2012, Kesturi entered into a supplementary concession agreement (SCA) with the government and saw its concession period for DUKE and DUKE Phase 2 extended to 54 years, commencing from August 2005. The concession period could be extended for a further 10 years, subject to the terms and conditions of the SCA.
Ekovest, meanwhile, has been granted a 53½-year concession to build, operate and transfer the 50km Setiawangsa-Pantai Expressway (SPE) (formerly known as DUKE Phase 3). However, Kesturi does not own DUKE 3.
The deal has been met with criticism. Among the questions raised is why the 30% stake in Kesturi was not offered to the EPF when Malaysian Resources Corp Bhd sold its equity interest to Ekovest for RM760 million in 2014.
Some quarters are questioning the rationale of the sale and valuation. It probably cannot be denied that the divestment will help Ekovest unlock asset value while remaining in control of the toll highway.
A source familiar with the deal explains that the provident fund’s investment mandate does not allow it to buy greenfield projects. “Back then, DUKE was considered a greenfield project.”
The future earnings of DUKE are understood to be attractive. The projections have convinced institutional funds to subscribe to its RM2.3 billion Islamic medium-term bonds issued in 2013.
DUKE Phase 1 is expected to see traffic volume growth of 10% in 2017, 5% in 2018 and 2% from 2019 onwards until 2059. For DUKE Phase 2, traffic volume is projected to grow at a high 35% in 2018 before moderating to 10% in 2019, 7% in 2020 and 5% from 2021 to 2028. From 2029 onwards, the projections assume 30 years of stable growth of 2%.
A source from the EPF discloses that the provident fund is expecting a low teens internal rate of return from the investment.
“It looks like a fair deal with the amount of capex spent on DUKE Phase 2. The actual traffic volume has also narrowed closer to the traffic projection and even surpassed it since 2014. Based on my conservative discounted cash flow model, the value should be about right,” a credit analyst with a local asset management company says.
However, the traffic volume projections may have failed to consider the effectiveness of the public transport system. While Malaysians are known to prefer driving cars, the government is spending about RM40 billion to upgrade infrastructure for public transport, ranging from buses, mass rapid transit and light rail transit.
With the billions to be spent on this sector, one cannot help but wonder if it will impact the toll road operators.  While acknowledging that public transport could be an alternative to expressways, the credit analyst adds that the authorities has envisioned Greater Kuala Lumpur needing at least 10 new highways in the near future — an indication that most KL folk will continue to choose to drive.