Investment Highlights

• We maintain our UNDERWEIGHT call, forecasts and fair value of RM0.17 on Econpile Holdings (Econpile) based on 8x fully diluted CY21F EPS of 2.1 sen, in line with our benchmark forward target PE of 8x for small-cap construction stocks.
• Econpile’s 1QFY21 net profit came within our expectations at 21% of our full-year forecasts but missed market expectations at only 14% of the full-year consensus estimates.
• Its 1QFY21 net profit plunged 37% YoY as construction activities were still sub-optimal given various operational restrictions under the new norms that weighed down on efficiency, such as more restricted operating hours, worker density on the site, etc.
• Meanwhile, Econpile has yet to secure any new job in FY21F. At present, its outstanding order book stands at about RM680mil (Exhibit 2), which is less than half of the RM1.4bil it carried two years ago during the peak of the previous construction cycle in 2018. We are keeping our forecasts which conservatively assume Econpile to only secure RM300mil worth of new jobs annually in FY21–23F (vs. the company’s guidance for RM500mil in FY21F).
• 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, such as the MRT3 and the KL–Singapore high-speed rail.
• Already, S&P Global Ratings downgraded Malaysia’s outlook to negative from stable in June 2020 to reflect a heightened risk of fiscal deterioration, weighed down by the economic impact of the Covid-19 pandemic, depressed oil prices and fiscal stimulus.
• 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 19–22x forward earnings on muted earnings growth prospects.

Source: AmInvest Research - 27 Nov 2020