Investment Highlights

• We raise our FY21–23F net profit forecasts by 6%, 9% and 10% respectively and revise up our fair value by 6% to RM0.18 (from RM0.17) based on 8x revised FD CY21F EPS of 2.2 sen, in line with our benchmark forward target PE of 8x for small-cap construction stocks. Maintain UNDERWEIGHT.
• Econpile has secured a US$85.7mil (RM347.6mil) piling and substructure work subcontract for an “integrated entertainment complex” in Phnom Penh, Cambodia, from MCC International Incorporation Ltd. The construction period is 30 months.
• The latest job is the first major contract Econpile has bagged in FY21F, boosting its outstanding order book to RM1bil (Exhibit 1). Our earnings upgrade is to reflect a higher assumption for job wins of RM400mil in FY21F (vs. RM300mil previously). We are keeping our assumption of RM300mil worth of new jobs annually in FY22–23F as we regard the latest lumpy job as non-recurring.
• We maintain our view that the government will have very limited room for fiscal manoeuvre in 2021 given the elevated national debt, even before the pandemic. The government’s fiscal position has been weighed down further by the economic impact of the pandemic (including reduced petroleum revenues), as well as the massive relief spending to cushion the economic impact of the pandemic. All these have culminated in Fitch Ratings’ Dec 2020 downgrade of Malaysia’s long-term foreign-currency issuer default rating to ‘BBB+’ from ‘A-’ (on the heels of S&P Global Ratings’ June 2020 downgrade of Malaysia’s outlook to negative from stable).
• Under these circumstances, we believe the government is unlikely to roll out new public infrastructure projects in a major way over the short term, particularly, the MRT3 (scaled down to RM21bil) and the KL–Singapore HighSpeed Rail (HSR) (scaled down to RM68bil). Also, the government has yet to set a new date for the tabling of the 12th Malaysia Plan (which, among others, will earmark mega public infrastructure projects to be implemented in 2021–2025). It was originally scheduled to be tabled in Aug 2020.
• 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 21–25x forward earnings on muted earnings growth prospects.

Source: AmInvest Research - 16 Dec 2020