• Econpile Holdings (Econpile) has received a letter of award of RM37mil from Domain Resources to undertake substructure works for a proposed phased housing development project.

• The project is expected to comprise Phase 1 affordable homes (PT7) – a single block of residential units – and Phase 2 (PT8) with 3 blocks of residential units at Jalan Pantai Dalam, Kuala Lumpur. The project will be carried out over 15 months from May 2022 onwards, contributing to FY23F earnings.

• We expect the project to contribute a net profit of RM3mil, with the bulk of earnings to be recognised in FY23F. Nevertheless, our forecasts are unchanged as this award is within our order book assumption. During our previous engagement with the company, Econpile said that the rising cost of building materials has already been accounted for in new tenders. However, we are cautious as supply shortages may be prolonged due to the Ukraine-Russia war and extreme lockdown measures in China.

• On rising labour costs 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 that have been completed or nearing completion, which could lead to weak prospects in property-related job wins for piling contractors like Econpile.

• On a positive note, Econpile may secure 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 11x FY22F 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 FY22F PE of 9x.

Source: AmInvest Research - 10 May 2022