Investment Highlights

• We maintain our UNDERWEIGHT call, forecasts and FV of RM0.24 based on 8x FD CY20F EPS of 3.06 sen, in line with our benchmark forward target PE of 8x for small-cap construction stocks.

• Econpile has secured a RM45mil contract for piling and raft foundation works for Kuchai Sentral’s high-rise mixed development in Kuala Lumpur. The latest contract has boosted its YTD (FY June) contracts secured to RM149.6mil and its outstanding order book to RM850mil (Exhibit 1). We are keeping our forecasts which assume Econpile will secure RM500mil worth of new jobs annually in FY20–22F on the back of the slowdown in the local construction market, vs. Econpile’s internal target for new job wins of RM600mil in FY20F (vs. RM643.7mil achieved in FY19).

• During a recent analyst briefing, it guided for about RM100– 200mil new contracts to come from piling jobs for property projects. For infrastructure piling jobs, Econpile said that it depends on the timing of the rollout of new public projects by the government of which clarity is still lacking at present. For the East Coast Rail Link (ECRL) project, Econpile said that it had “attended briefing and visited the sites” and has been pre-qualified to participate in the project.

• Given the still elevated national debt, we believe the government has very limited room for fiscal manoeuvre which means that it is unlikely to roll out new public infrastructure projects in a major way over the short term. 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 22–27x forward earnings on muted earnings growth prospects.

Source: AmInvest Research - 10 Jan 2020