Investment Highlights

• We raise our FY19-21F net profit forecasts by 3%, 6% and 7% respectively, increase our FV slightly to RM0.27 (from RM0.26) but maintain our UNDERWEIGHT call. Our new FV is based on 8x FD CY19F EPS of 3.35 sen, in line with our benchmark forward P/E of 8x for small-cap construction stocks.

• Econpile has secured a RM68.8mil contract for piling, pilecap and basement works for a mixed high-rise development named Terra in Precinct 8, Putrajaya. The latest job has boosted its YTD (FY June) job wins to RM575.5mil. Our forecasts now assume Econpile to secure RM600mil worth of new jobs in FY19F (from RM500mil previously). For FY20-21F, we are keeping our assumption for job wins at RM500mil annually.

• Despite the latest job award, its outstanding order book slips to RM950mil (Exhibit 1) from the last reported number of RM1.1bil. We believe this is largely due to work progress on ongoing projects.

• We maintain our view that the current slowdown in the local construction industry sector is no ordinary sector cyclical downturn, but a secular change to the sector’s fundamentals, triggered by: (1) a major cutback in public infrastructure spending over the medium term as the government adheres to fiscal prudence; and (2) the permanent reduction in overall margins for players in the absence of high-margin directly-negotiated government jobs, as the government observes higher standards of transparency and accountability in public procurement.

• We are also mindful of the acute oversupply situation in the high-rise residential, retail mall and office segments, which translates to weak prospects in property-related job wins for piling contractors like Econpile. Its valuations are unattractive at 11–22x forward earnings on muted earnings growth prospects.

Source: AmInvest Research - 11 Mar 2019