Investment Highlights

• We raise our FY21–23F net profit forecasts by 3–5% each to reflect interest savings coming from RM40.2mil net proceeds arising from the recently concluded private placement of 80mil new shares at an issue price of RM0.515. However, we keep our fully diluted EPS forecasts relatively unchanged as higher earnings are offset by an enlarged share base. Thus, our fair value is maintained at RM0.18 based on 8x fully diluted CY21F EPS of 2.2sen, in line with our benchmark forward target PE of 8x for smallcap construction stocks. Maintain UNDERWEIGHT.

• Econpile’s 1HFY21 net profit came in at only 26% of our fullyear forecast. However, we consider the results within our expectations as we expect a stronger 2H with construction activities gathering momentum as it adapts better to operating under the new norms. At only 19% of the full-year consensus estimates, we consider the results below expectations.

• Its 1HFY21 net profit plunged 58% 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.

• Thus far in FY21F, Econpile’s job wins stand at RM403mil including a US$85.7mil (RM347.6mil) piling and substructure work subcontract for an integrated entertainment complex in Phnom Penh, Cambodia. At present, its outstanding order book stands at about RM930mil (Exhibit 2), which is significantly lower than the RM1.4bil it carried two years ago during the peak of the previous construction cycle in 2018.

• We are keeping our forecasts that assume Econpile to secure about RM400mil worth of new jobs in FY21F and subsequently fall to RM300mil annually in FY22–23F (in the absence of lumpy jobs).

• 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 tax and 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 foreigncurrency 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.

Source: AmInvest Research - 25 Feb 2021