• Econpile Holdings (Econpile) has received a letter of award from CJ Synergy Solutions to undertake the foundation and basement work for a 5-storey industrial building with a single-storey M&E at roof level and a 3-storey basement carpark at Lot 38 (PN 10285) Seksyen 20, Jalan 51/206, Petaling Jaya, Selangor for a total contract sum of RM23mil. The project will be carried out over 9 months from 18 April 2022, contributing to FY22F and FY23F earnings.

• We expect this project to contribute a net profit of RM2.3mil, with the bulk of earnings to be recognised in FY23F. Nevertheless, our forecasts are unchanged as this award is within our order book assumption.

• Econpile said that the rising cost of building materials has already been accounted for in this tender. However, we are cautious as supply shortages may be prolonged due to the Ukraine-Russia war.

• On the rising labour cost stemming from the revision of minimum wages to RM1,500 effective 1 May 2022, Econpile expects the impact to be spread out across newer projects secured.

• We are also mindful of the huge supply of high-rise residential, retail mall and office developments locally, which could lead to weak prospects in property-related job wins for piling contractors like Econpile.

• On a positive note, Econpile may spring a surprise by securing sizeable infrastructural jobs, potentially for the MRT3. Recall that the company received a RM43.5mil project to undertake bored piled works for the MRT2 back in 2016.

• Econpile currently trades at a demanding 11x FY23F PE, above our benchmark of 9x for small-cap construction stocks. Hence, we maintain our SELL call with a fair value of RM0.21/share based on FY22 PE of 9x.

• Econpile Holdings (Econpile) has received a letter of award from CJ Synergy Solutions to undertake the foundation and basement work for a 5-storey industrial building with a single-storey M&E at roof level and a 3-storey basement carpark at Lot 38 (PN 10285) Seksyen 20, Jalan 51/206, Petaling Jaya, Selangor for a total contract sum of RM23mil. The project will be carried out over 9 months from 18 April 2022, contributing to FY22F and FY23F earnings.

• We expect this project to contribute a net profit of RM2.3mil, with the bulk of earnings to be recognised in FY23F. Nevertheless, our forecasts are unchanged as this award is within our order book assumption.

• Econpile said that the rising cost of building materials has already been accounted for in this tender. However, we are cautious as supply shortages may be prolonged due to the Ukraine-Russia war.

• On the rising labour cost stemming from the revision of minimum wages to RM1,500 effective 1 May 2022, Econpile expects the impact to be spread out across newer projects secured.

• We are also mindful of the huge supply of high-rise residential, retail mall and office developments locally, which could lead to weak prospects in property-related job wins for piling contractors like Econpile.

• On a positive note, Econpile may spring a surprise by securing sizeable infrastructural jobs, potentially for the MRT3. Recall that the company received a RM43.5mil project to undertake bored piled works for the MRT2 back in 2016.

• Econpile currently trades at a demanding 11x FY23F PE, above our benchmark of 9x for small-cap construction stocks. Hence, we maintain our SELL call with a fair value of RM0.21/share based on FY22 PE of 9x.

Source: AmInvest Research - 18 Apr 2022