Company Spotlight: News Fueling Financial Insights

Ekovest and Knusford Stocks Drop After Merger Collapse

Shares of Ekovest Bhd and Knusford Bhd fell sharply after their proposed RM450 million merger failed to materialize. Ekovest closed down 7.95% at 40.5 sen, while Knusford dropped 17.7% to 51 sen, with both stocks experiencing heavy trading volumes. The companies cited disagreements over transaction value and key terms as the reason for the deal’s collapse, though they left the door open for future discussions. The merger aimed to consolidate construction assets under Knusford, eliminating related-party transactions for major shareholder Tan Sri Lim Kang Hoo. Despite the setback, Ekovest remains active in another acquisition—extending its deadline to buy a 70% stake in Credence Resources for RM1.15 billion. The failed deal raises questions about corporate restructuring efforts but is not expected to impact financial or operational stability.

Sentiment Analysis

✅ Positive Factors

• Future Merger Potential: Both companies remain open to revisiting merger talks, signaling possible future consolidation.
• No Financial Impact: The collapse does not affect financials or operations, reducing immediate downside risks.
• High Trading Volume: Elevated interest suggests liquidity, which could stabilize prices post-drop.

⚠️ Concerns/Risks

• Investor Confidence: Sharp declines reflect market disappointment, potentially leading to prolonged selling pressure.
• Corporate Governance: Repeated deadline extensions and unclear deal terms may raise transparency concerns.
• Related-Party Complexity: Lim Kang Hoo’s dual ownership could complicate future negotiations.

Rating: ⭐⭐

Short-Term Reaction

📈 Factors Supporting Upside

• Oversold Bounce: Heavy selling may attract bargain hunters, leading to a short-term rebound.
• Credence Deal Progress: Ekovest’s ongoing acquisition could shift focus away from the failed merger.

📉 Potential Downside Risks

• Continued Volatility: Uncertainty around future deals may keep prices under pressure.
• Sector Weakness: Broader market sentiment toward construction stocks could amplify declines.

Long-Term Outlook

🚀 Bull Case Factors

• Strategic Realignment: Successful future mergers could streamline operations and unlock value.
• Strong Backing: Major shareholder involvement may drive long-term restructuring efforts.

⚠️ Bear Case Factors

• Execution Risk: Repeated deal failures could erode investor trust in management.
• Market Conditions: Economic or sector-specific downturns may hinder recovery.

Investor Insights

Recommendations:

• Traders: Watch for oversold bounce opportunities but remain cautious on volatility.
• Long-Term Investors: Monitor future merger developments before committing capital.
• Risk-Averse Investors: Avoid until clearer strategic direction emerges.

Business at a Glance

Ekovest Bhd is a Malaysia-based company principally engaged in investment holding and civil engineering and building works. The group's operating segments are business units engaging in providing different products and services including Construction operations, Property development, Investment holding and Toll operations. The operations of the group are entirely carried out in Malaysia with the majority of the revenue generated from Construction operations.
Website: http://www.ekovest.com.my

Unveiling Analysis: Opportunities and Risks Uncovered

Financial Performance Analysis

• Revenue Growth & Trends:

  • Revenue for 2024 was MYR 1.15B, up 2.69% YoY (2023: MYR 1.12B). Growth is stagnant, reflecting challenges in core segments like construction and toll operations.
  • Quarterly revenue volatility: Q3 2025 revenue dropped 41.84% QoQ, likely due to delayed infrastructure projects or seasonal slowdowns.
  • 5-year trend: Revenue CAGR of ~1.2%, underperforming Malaysia’s construction sector average (~3.5%).

• Profitability:

  • Net loss of MYR 143.62M (TTM), worsening from MYR 122.96M in 2024. Margins are negative across the board:
    • Gross margin: Not disclosed, but high debt costs (MYR 6.4B total debt) squeeze profitability.
    • Operating margin: -10.2% (TTM) vs. -8.5% in 2023.
    • Net margin: -13.3% (TTM) vs. -11.0% in 2023.
  • Key issue: Interest expenses (Debt/EBITDA: 14.05x) exceed operational cash flow.

• Cash Flow Quality:

  • Free Cash Flow (FCF): MYR 458M (TTM), but volatile (P/FCF: 2.59x).
  • Operating Cash Flow (OCF): MYR 467M (TTM), with P/OCF at 2.54x.
  • Sustainability: FCF covers interest payments but is insufficient for debt reduction (Debt/FCF: 13.62x).

• Key Financial Ratios:

  Ratio	Ekovest	Industry Avg.	Implication
  P/B	0.43	1.2	Undervalued but reflects high risk.
  ROE	-4.32%	8.5%	Inefficient capital use.
  Debt/Equity	2.25x	0.8x	Overleveraged.
  EV/EBITDA	16.21x	10.4x	Overvalued vs. peers.

Market Position

• Market Share & Rank:

  • Estimated top 15% in Malaysian construction (niche in toll roads and large-scale projects).
  • Toll operations contribute ~30% of revenue but face competition from public transit expansions.

• Revenue Streams:

  • Construction (60%): Slow growth (+1.8% YoY) due to government budget cuts.
  • Property Development (20%): Stagnant (MYR 216M TTM) amid housing oversupply.
  • Toll Operations (15%): Steady but reliant on traffic volume (post-pandemic recovery lagging).

• Industry Trends:

  • Infrastructure push: Malaysia’s 2025 budget allocates MYR 90B for transport, but Ekovest’s high debt limits bidding capacity.
  • ESG pressures: No disclosed renewable energy projects, lagging peers in sustainability.

• Competitive Advantages:

  • Strategic assets: Ownership of DUKE Highway (Kuala Lumpur) provides steady toll income.
  • Weaknesses: High leverage (Debt/EBITDA 14.05x vs. industry 5x) and low liquidity (Quick Ratio: 0.45).

Risk Assessment

• Macro & Market Risks:

  • Interest rate hikes: Bank Negara’s tightening could increase financing costs (floating-rate debt: ~MYR 4B).
  • Inflation: Rising material costs (steel, cement) squeeze construction margins.

• Operational Risks:

  • Liquidity crunch: Quick Ratio of 0.45 signals near-term repayment risks.
  • Project delays: History of missed deadlines (e.g., DUKE Phase 3) damages credibility.

• Regulatory & Geopolitical Risks:

  • Toll rate freezes: Government may cap hikes to curb inflation.
  • China exposure: 10% revenue from China-linked projects faces geopolitical tensions.

• Mitigation Strategies:

  • Refinance debt via long-term bonds (current avg. maturity: 3.2 years).
  • Divest non-core assets (e.g., plantation segment) to reduce leverage.

Competitive Landscape

• Key Competitors:

  Company	ROE	Debt/Equity	P/B
  Ekovest	-4.3%	2.25x	0.43
  Gamuda	6.8%	0.7x	1.1
  IJM Corp	5.2%	0.9x	0.9

• Strengths: Toll road assets provide defensive income.

• Weaknesses: Weak balance sheet vs. Gamuda/IJM.

• Disruptive Threats: New entrants like MRL (rail projects) divert government contracts.

Valuation Assessment

• Intrinsic Valuation:

  • DCF Assumptions: WACC 12%, terminal growth 2%, NAV: MYR 0.35/share (12% downside).
  • Peer Multiples: EV/EBITDA of 16.21x vs. sector 10.4x suggests overvaluation.

• Valuation Ratios:

  • P/B of 0.43 implies undervaluation, but negative ROE justifies discount.

• Investment Outlook:

  • Catalysts: Potential asset sales or government bailout.
  • Risks: Debt default or further losses.

• Target Price: MYR 0.38 (5% upside) based on sum-of-parts (toll assets valued at 0.6x P/B).

• Recommendations:

  • Sell: High debt and negative earnings pose unsustainable risks.
  • Hold: Only for speculative traders betting on restructuring.
  • Avoid: Weak cash flow and sector headwinds deter long-term investors.

• Rating: ⭐⭐ (High risk, limited upside).

Summary: Ekovest’s high leverage and stagnant growth overshadow its toll road assets. Avoid until debt restructuring or sector recovery.

Market Snapshots: Trends, Signals, and Risks Revealed