Investment Highlights

• We maintain our UNDERWEIGHT call, forecasts and FV of RM0.19 based on 8x FD CY21F EPS of 2.4 sen, in line with our benchmark forward target PE of 8x for small-cap construction stocks.

• Econpile has secured a RM104.5mil subcontract for reinforced concrete works for Phase 2 of Pavilion Damansara Heights mixed development in Kuala Lumpur. The latest contract has boosted its YTD (FY June) contracts secured to RM275.5mil and its outstanding order book to RM805mil (Exhibit 1). We are keeping our forecasts which assume Econpile will secure RM300mil worth of new jobs annually in FY20–22F on the back of the slowdown in the local construction market (vs. RM643.7mil it achieved in FY19).

• Given the still elevated national debt and the still depressed oil prices (that will hurt petroleum revenues), 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, such as the MRT3 and the KL–Singapore high-speed rail. On a brighter note, Econpile has been pre-qualified to participate in the East Coast Rail Link (ECRL) project. The main contractor of the 640km rail project recently started to dish out subcontracting jobs to local players.

• 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.

• Econpile’s valuations are excessive at 24–39x forward earnings on muted earnings growth prospects.

Source: AmInvest Research - 9 Jun 2020