BACKGROUND OF THE CASE Johor Corporation is spoilt for choice when it comes to unlocking the value of its assets

to settle the RM3.6 billion debt that matures in July 2012. The state-owned group has many options at its disposal, with RM2.1 billion worth of assets available for sale, to meet its debt obligations. There has been much speculation lately that Johor Corporation may be looking to sell its prized assets including Kulim (M) Bhd to address its debt woes.

Its new president and chief executive Kamaruzzaman Abu Kassim says the RM3.6 billion debt burden is unsustainable and the group aims to bring it down to RM1 billion to RM1.5 billion, which means it is looking at settling as much as RM2.6 billion of the amount due. The group already have 70% of that amount planned, which works out to RM1.82 billion and the remaining 30% will come from sales from its stable of local and foreign assets.

The RM3.6 billion in bonds coming due next year has fuelled speculation that it would sell assets to settle the debt. Indeed, last November, three offers were made for KFC Holdings and QSR, all of which were turned down. JCorp had engaged CIMB Investment Bank and Maybank Investment Bank as advisors in the debt restructuring. Kamaruzzaman notes that the bankers have shortlisted assets that the group should sell or keep. He stressed that JCorp will select and keep assets that can be developed to generate recurring income for the group.

JCorp may even list some of the businesses within the group, but the objective of any listing would not be to raise capital to settle its debts but for these entities to meet their own financial needs. Among the businesses slate to be listed is EA Technique (M) Sdn Bhd, a shipping company held by Sindora Bhd, Kulim main market-listed 75.2% subsidiary.

Kamaruzzaman acknowledges that there have been a number of related party transactions within the group, but points out that that JCorp has many land holdings in strategic locations and the KFC restaurant business has targets to meet in terms of the number of new outlets to be

added each year under its franchise agreement with YUM! Brands Inc. JCorp also owned a vast land bank comprising industrial, commercial and residential lands as well as hotel properties in Johor. It have industrial property valued at RM1.3 billion, classified as assets held for sale and commercial land valued at RM2.5 billion.

JCorp aims to unlock the value or develop these lands to generate income for the group. It believes its close relationship with the state government will be an advantage, especially in obtaining approvals to develop the land as its objectives are aligned with the state. The group were spoilt for choices where there are many things can be chose from and which in short, JCorp must continue in its developmental role with the state government as the group were now become the prime FDI agent for the state.

As for Ekovest Bhd, an industry source say the group are interested to bidding on Kulim which were controlled by Johor businessman, Datuk Lim Kang Hoo. The bid are curiously been issued, considering that Ekovest is a small company attempting to acquire another many times larger capitalization. As for now, the market capitalization for Ekovest was RM606.11 million, compared to Kulims RM4.43 billion.

Lim, who controls 25.4% of Ekovest, also sits on the board of two other listed companies, namely Knusford Bhd and PLS Plantations Bhd. Another substantial shareholder of Ekovest is one Khoo Nang Seng, who has a direct 10.23%. When queried by Singapore's Business Times on his interest in PMP, Ekovest's Lim had reportedly replied, `I'm a businessman and if I see a good investment opportunity, I will invest.'

Is it possible for Ekovest Bhd to take over Kulim? What are the benefits that Ekovest will get from the acquisition? How does Ekovest plan to fund the takeover?

EKOVEST BERHAD Ekovest, the name synonymous with building construction and civil engineering works was formed by a group of highly enterprising and self-motivated individuals and highly qualified experienced professionals.

On 2nd January 1985, the founders started Ekovest Bina Sdn. Bhd. and this signaled the involvement in bigger and more technically demanding engineering projects. This name was later changed to Ekovest Sdn. Bhd. Following its conversion to a public listed company and listing in KLSE on 28th August 1992, it assumed its new name Ekovest Berhad. Since then, Ekovest Berhad has emerged as one of the leading construction companies in the country involved in major civil engineering and building works such as turnkey, design and build projects and project management.

KULIM (M) BHD Kulim (Malaysia) Berhad, through its subsidiaries, engages in oil palm plantation, investment holding, and property investment businesses in Malaysia. The companys plantation operations comprise oil palm planting, crude palm oil processing and plantation, and management and consultancy services. It also manufactures and sells oleo chemicals and rubber products; operates quick service restaurants, such as Pizza Hut and Ayamas outlets; engages in sea transportation, parking management, sale of wood-based products, and bulk mailing and printing services; and involves in property investment business, which include property letting.

In addition, the company assembles mechanical and agricultural equipment; produces oil palm clones by plant tissue culture technology; trades and distributes tropical fruits; operates palm oil mills and plantations, and rubber estates; cultivates sugar cane, pineapples, and other agricultural products; conducts in-house and external training programs; breeds and sells cattle; manufactures biodiesel; produces oil palm seeds and sells germinated oil palm seeds; and trades a granular synthetic bone graft, GranuMas.

Further, it offers facilities maintenance, and project and construction services; field clearing, earthwork, road construction, and resurfacing services; and landholding services, as well as manufactures esters, soap noodles, and palm wax. The company also trades parking and related transportation equipment, and wood products; and processes and sells sawn timber and timber doors, as well as operates as a forwarding agent. It has operations in Papua New Guinea, Indonesia, Malaysia, the United States, China, Japan, and the Netherlands. The company was incorporated in 1933 and is based in Johor Bahru, Malaysia. Kulim (Malaysia) Berhad is a subsidiary of Johor Corporation.

EXHIBIT 1 CORPORATE STRUCTURE OF EKOVEST BERHAD

EXHIBIT 2 PROJECTS COMPLETED BY EKOVEST BHD Item 1 2 3 4 5 6 7 8 9 10 Projects Labuan Financial Park Fitting out of Petronas Twin Tower Universiti Malaysia Sabah Office Buildings at Putrajaya and infrastructure Office Buildings for Petronas Carigali in Lutong KLIA Central Terminal Areas Road and Structure Danga Bay KL Central Station and related infrastructure Universiti Tun Hussein Onn Malaysia (UTHM) DUKE Highway

EXHIBIT 3 CORPORATE STRUCTURE OF KULIM (M) BHD

EXHIBIT 4 FINANCIAL INFORMATION OF KULIM (M) BHD

Ratio Performance 2009 Profitability Ratio Return on Equity Return on Total Assets Investment Ratio P/E Ratio Dividend Yield Dividend Payout Liquidity Ratio Current Ratio Quick Ratio Financial Leverage Ratio Total Debt Equity Ratio Debt Ratio Performance/Market Ratio Gross EPS (Sen) Dividend (Sen) 4.326 1.806 2008 10.809 5.306 2007 17.458 9.283 2006 5.246 2.745

15.989 2.384 0.381

3.913 3.275 0.128

5.268 1.887 0.099

10.824 1.923 0.208

1.305 0.928

1.375 1.011

1.699 1.487

1.088 0.816

0.506 0.891

0.451 0.723

0.355 0.623

0.336 0.758

47.22 18.00

117.04 15.00

150.91 15.00

48.04 10.00

Income Statement (RM000) 2009 Sales Revenues Operating Profit Profit/loss Before Tax Taxation Profit After Tax Extraordinary Items Minority Interest Net Profit/loss To Shareholders Gross EPS (Sen) Dividend (Sen) Balance Sheet (RM000) 2009 2008 2007 2006 5806205.0 582359.0 521865.0 -169954.0 351911.0 0.0 -206074.0 145837.0 47.22 18.00 2008 3989338.0 660325.0 667850.0 -141297.0 526553.0 0.0 -175325.0 351228.0 117.04 15.00 2007 2741489.0 416562.0 558793.0 -125971.0 432822.0 82252.0 0.0 515074.0 150.91 15.00 2006 1836531.0 166690.0 221558.0 -51617.0 169941.0 0.0 -42292.0 127649.0 48.04 10.00

CURRENT ASSETS Cash And Bank Balances Short Term Investment Stocks Debtors / Receivables Other Current Assets TOTAL CURRENT ASSETS CURRENT LIABILITIES Short-term Loans Creditors / Payables Taxation Dividends Other Current Liabilities TOTAL CURRENT LIABILITIES NET CURRENT ASSETS LONG-TERM ASSETS Property, Plant and Equipment Investments Intangible Assets Other Long Term Assets TOTAL LONG-TERM ASSETS SHAREHOLDERS FUND Share Capital Treasury Shares Reserves TOTAL SHAREHOLDERS FUND MINORITY INTEREST LONG-TERM LIABILITIES

405227.0 33669.0 525883.0 790506.0 62040.0 1817325.0

445476.0 27368.0 388598.0 548909.0 56133.0 1466484.0

648307.0 112205.0 199227.0 615481.0 19477.0 1594697.0

138917.0 7807.0 172881.0 316078.0 55776.0 691459.0

547747.0 705908.0 114620.0 23426.0 401.0 1392102.0 425223.0

566229.0 361260.0 122101.0 16768.0 0.0 1066358.0 400126.0

624642.0 288818.0 25052.0 0.0 0.0 938512.0 656185.0

389106.0 243750.0 2626.0 0.0 0.0 635482.0 55977.0

5291495.0 60269.0 891691.0 13278.0 6256733.0

4184458.0 640664.0 320906.0 7447.0 5153475.0

3117238.0 542919.0 288159.0 5297.0 3953613.0

3216894.0 454266.0 285029.0 2595.0 3958784.0

159336.0 0.0 3212029.0 3371365.0 1699037.0 1611554.0

154227.0 0.0 3095086.0 3249313.0 1020621.0 1283667.0

148545.0 0.0 2801734.0 2950279.0 759739.0 899780.0

137950.0 0.0 2295514.0 2433464.0 373009.0 1208288.0

Cash Flow Statement (RM000) 2009 2008 2007 2006

Cash Flows From Operating Activities Cash Flows From Investing Activities Cash Flows From Financing Activities Net Changes In Cash And Cash Equivalents Cash And Cash Equivalents Brought Forward Cash And Cash Equivalents Carried Forward

628313.0 -632855.0 -45113.0 -49655.0 415038.0 365383.0

706541.0 -617793.0 -324781.0 -236033.0 628960.0 392927.0

470715.0 79787.0 -26536.0 523966.0 88597.0 612563.0

157332.0 -238533.0 1668.0 -79533.0 168130.0 88597.0

EXHIBIT 5 FINANCIAL PERFORMANCES OF EKOVEST BERHAD Ratio Performance

2010 Profitability Ratio Return on Equity Return on Total Assets Investment Ratio P/E Ratio Dividend Yield Dividend Payout Liquidity Ratio Current Ratio Quick Ratio Financial Leverage Ratio Total Debt Equity Ratio Leverage Ratio Performance Ratio Gross EPS (Sen) Dividend (Sen) 3.225 2.004

2009 2.222 1.27

2008 5.477 3.127

2007 5.957 3.739

19.943 3.546 0.707

32.365 3.205 1.037

9.637 4.386 0.423

20.655 1.887 0.39

1.116 1.116

1.12 1.12

1.218 1.218

1.612 1.612

0.154 0.609

0.283 0.746

0.428 0.75

0.358 0.57

7.07 5.00

4.82 5.00

11.83 5.00

12.83 5.00

Income Statement (RM000) 2010 Turnover Operating Profit Profit/loss Before Tax Taxation Profit After Tax Extraordinary Items Minority Interest Net Profit/loss To Shareholders Gross EPS (Sen) Dividend (Sen) Balance Sheet (RM000) Balance Sheet (MYR '000) CURRENT ASSETS 2010 2009 2008 2007 217733.0 23060.0 19567.0 -10659.0 8908.0 0.0 1191.0 10099.0 7.07 5.00 2009 277759.0 16317.0 10694.0 -3872.0 6822.0 0.0 4.0 6826.0 4.82 5.00 2008 442312.0 29794.0 25838.0 -9081.0 16757.0 0.0 -33.0 16724.0 11.83 5.00 2007 356601.0 28792.0 25660.0 -8237.0 17423.0 0.0 -82.0 17341.0 12.83 5.00

Cash And Bank Balances Short Term Investment Stocks Debtors / Receivables Other Current Assets TOTAL CURRENT ASSETS CURRENT LIABILITIES Short-term Loans Creditors / Payables Taxation Dividends Other Current Liabilities TOTAL CURRENT LIABILITIES NET CURRENT ASSETS LONG-TERM ASSETS Property, Plant And Equipment Investments Intangible Assets Other Long Term Assets TOTAL LONG-TERM ASSETS SHAREHOLDERS FUND Share Capital Treasury Shares Reserves TOTAL SHAREHOLDERS FUND MINORITY INTEREST LONG-TERM LIABILITIES

75109.0 0.0 0.0 127939.0 848.0 203896.0

89803.0 0.0 0.0 153439.0 2403.0 245645.0

94303.0 0.0 0.0 169714.0 2185.0 266202.0

87612.0 0.0 0.0 163810.0 2446.0 253868.0

43544.0 134974.0 4247.0 0.0 0.0 182765.0 21131.0

80786.0 138528.0 66.0 0.0 0.0 219380.0 26265.0

68965.0 147090.0 2518.0 0.0 0.0 218573.0 47629.0

49129.0 105316.0 3070.0 0.0 0.0 157515.0 96353.0

134721.0 165202.0 0.0 0.0 299923.0

126371.0 165481.0 0.0 0.0 291852.0

98133.0 170422.0 0.0 39.0 268594.0

74873.0 134966.0 0.0 27.0 209866.0

142889.0 0.0 170262.0 313151.0 0.0 7903.0

141701.0 0.0 165481.0 307182.0 1191.0 9744.0

141388.0 0.0 163969.0 305357.0 395.0 10471.0

138627.0 0.0 152476.0 291103.0 6746.0 8370.0

Cash Flow Statement (RM000) Cash flow Statement (MYR '000) 2010 2009 2008 2007

Cash Flows From Operating Activities Cash Flows From Investing Activities Cash Flows From Financing Activities Net Changes In Cash And Cash Equivalents Cash And Cash Equivalents Brought Forward Cash And Cash Equivalents Carried Forward

33583.0 -17903.0 -7202.0 8478.0 -16127.0 -7649.0

13033.0 6963.0 -7079.0 12917.0 -29044.0 -16127.0

54791.0 -70012.0 -7073.0 -22294.0 -6750.0 -29044.0

109182.0 -110230.0 3385.0 2337.0 -9087.0 -6750.0

ANALYSIS AND EVALUATION Ratio Performances Ekovest Berhad

Liquidity ratios attempt to measure a company's ability to pay off its short-term debt obligations. This is done by comparing a company's most liquid asset those that can be easily converted to cash, its short-term liabilities. We decided to evaluate using current ratio, quick ratio and net working capital. As we can see, there is a decreasing trend from year 2006 to 2010 whereby the ratio had a low increment. This indicates that it gets harder for Ekovest Berhad to pay its short-term liabilities among the 5 years. Ekovest Berhad also will have difficulty meeting running its operations, as well as meeting its obligations.

For activity ratios, we apply the average collection period. A lower average collection period is seen as optimal, because this means that it does not take a company very long to turn its receivables into cash. As we can see, the Ekovest Berhad has decreasing trend from 2006 to 2008 that indicates liquid account receivables that can be convert into cash quickly but its increase from the year 2009 to 2010.

Profitability ratios much like the operational performance ratios, give users a good understanding of how well the company utilized its resources in generating profit and shareholder value. We decided to evaluate using return on assets, return on equity and net profit margin. In general, the higher the percentage, the better because that means the company is doing a good job using its assets to generate sales and using the investor money. Ekovest Berhad has the increasing trend from year 2006 to 2007 and then decreased from year 2008 to 2009 before slightly increase on 2010.

Debt ratios give investor a general idea of the company's overall debt load as well as its mix of equity and debt. Debt ratios can be used to determine the overall level of financial risk a company and its shareholders face. In general, the greater the amount of debt held by a company the greater the financial risk of bankruptcy. We decided to evaluate using total debt and debt to equity ratio. Ekovest Berhad has increasing trend of debt ratios from 2006 to 2009 that indicate greater of financial risk and faced the bankruptcy but it slightly falls in 2010.

Market ratio ratios can be used by investors to estimate the attractiveness of a potential or existing investment and get an idea of its valuation. The most well-know market ratio is the P/E ratio, which compares the current price of company's shares to the amount of earnings it generates. The purpose of this ratio is to give users a quick idea of how much they are paying for each $1 of earnings. Ekovest Berhad has decreasing trend of P/E ratio from the year 2006 to 2010 that indicates the lower earnings growth in future.

Kulim (M) Berhad For Liquidity Ratio, we decided to evaluate using current ratio, net working capital and quick ratio. The reason why is because these ratios give an idea of the companys ability to pay back its short term liabilities with its short term assets. As we can see, there is an increasing trend from year 2006 to 2009 whereby the ratio had a high increment but it falls to 0.95 x in 2010. This indicates that it gets harder for Kulim Berhad to pay its short-term liabilities in 2010. Kulim Berhad also is having difficulties in running and meeting obligations.

For Activity Ratio, we apply the asset turnover and average collection period ratios. These ratios will identify whether a firm's able to convert different accounts within their balance sheets into cash or sales. Companies will typically try to turn their production into cash or sales as fast as possible because this will generally lead to higher revenues. As for Kulim Berhads asset turnover, it experiences a profitable from year 2006 to 2009 but it falls by 0.13 in 2010. This may indicate that Kulim Berhad is experiencing difficulties in using its assets in generating sales or revenue. Kulim Berhad had suffered a loss when its average collection period reached to 81 days in 2007 but the company managed to bounce back when its average collection period fall as low as 40 days in 2010. This indicates that Kulim Berhad possessing an optimal amount of days.

For Debt Ratio, we apply the total debt ratio and debt-to-equity ratio to evaluate what proportion of debt the company has relative to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in terms of its debt-

load. Based on our findings, we found that Kulim Berhad has more assets than debt because its debt ratio is below 1.00. This may imply that Kulim Berhad have a low level of risk. Meanwhile, Kulims debt-to-equity ratio falls below 1.00, which means the company is in good condition because it is not financed by debt. A low debt-to-equity ratio of Kulim Berhad implies that the company has more shareholder equity.

For Profitability Ratio, we decided to use return on asset and return on equity ratio to weigh up how profitable the company is relative to its total assets. Based on our findings on Kulims ROA, the company starts off with a small return of 14 % in 2006 but had the highest ROA of 49 % in 2007, which indicates that the company managed to employ a well managed companys total asset to make a profit. This means that Kulim is very much efficient in utilizing its asset base. Meanwhile, its ROE had a huge increase from year 2006 to 2007, which is from 23 % to 74 % respectively. However, Kulims ROE had a insignificant decline from 2007 to 2008 but managed to recover through the years until 2010. This shows that Kulim Berhad is efficient in utilizing its equity base and give better return to investors.

For Market Ratio, we apply the P/E ratio in evaluating the company's current share price compared to its per-share earnings. Based on our findings, Kulim is experiencing the lowest earnings to investors in 2008 which is 0.04, but it recover to grow into a higher earnings in 2009 and 2010, which is 0.16 and 0.10 respectively.

Cost of Capital Ekovest Berhad Wd = Total Liabilities

We

Shareholder Equity = 229,124 308,373 = 0.743

Wd = 0.743 We Wd = 0.743 We -------- Wd + We = 1 ----------- 0.743 We + We = 1 1.743 We = 1 We = 0.574 Wd = 1 0.574 = 0.426 Ke = rf + (rM - rf) = 3.5% + 0.70 (18% - 3.5%) = 13.65% WACC = Wd Kd (1 t) + We Ke = 0.426 (0.021) (1 0.25) + 0.574 (0.1356) = 0.0067095 + 0.078351 = 8.50 %

Kulim (M) Berhad Wd = Total Liabilities We Shareholder Equity

= 3,003,656 5,070,402 = 0.59 Wd = 0.59 We Wd = 0.59 We -------- Wd + We = 1 ---------- 0.59 We + We = 1 1.59 We = 1 We = 0.629 Wd = 1 0.629 = 0.371 Ke = rf + (rM - rf) = 3.5% + 1.29 (18% - 3.5%) = 22.21% WACC = Wd Kd (1 t) + We Ke = 0.371 (0.0466) (1 0.25) + 0.629 (0.2221) = 0.01297 + 0.1397 = 15.27 %

Will the Ekovest getting benefits from the acquisition based on the comparison of cost of capital and company background between Ekovest and Kulim?

No. because from the calculation of cost of capital trough weighted average cost of capital show that Kulims cost of capital higher than Ekovest. Weighted Average Cost of Capital (WACC) is therefore an overall return that a corporation MUST earn on its existing assets and business operations in order to increase or maintain the current value of the current stock. In order to maintain Ekovest Berhad return, they must maintain 8.50 % on all its assets and business operations. However, because of the percentage of WACC in KULIM (M) Berhad is 15.27 %, they might be deficit of capital to take over KULIM.