Investment Highlights

• We maintain SELL on Econpile Holdings (Econpile) with a lower fair value (FV) of RM0.12/share (vs. RM0.14/share previously) as we roll forward our PE valuation to FY24F. This is in line with our benchmark PE of 9x for small-cap construction stocks. There is no FV adjustment for ESG based on our 3-star rating.

• Econpile’s FY22 core net loss (CNL) of RM37.6mil was wider than our earlier FY22F loss of RM13mil and consensus’ estimated loss of RM12mil. The deviation from our forecast stemmed from lowerthan-expected order book wins and operating margins due to labour shortages and high raw material costs.

• As such, we cut our core net profit forecast for FY23F by 44% but raise FY24F by 34% on expectations that some of the project wins could be delayed from FY23F to FY24F. Currently, we have assumed a job replenishment of RM200mil in FY23F and RM250mil in FY24F. We make no changes to our margin assumptions on anticipation that operating margins will stabilise and labour shortages gradually ease. Also, steel prices have declined after peaking in Apr/May 2022.

• Econpile recorded a CNL of RM37.6mil in FY22 against a core net profit of RM10.5mil in FY21 due to: (i) provision of expected losses; and (ii) increased construction costs due to increased raw material prices and extension of time for existing projects.

• On a QoQ basis, Econpile posted a higher revenue (+7%) in 4QFY22 on the back of an increase in the completion of projects. However, CNL widened by 9% QoQ to RM13.7mil in 4QFY22 due to provision of expected loss and higher construction costs.

• In FY22, Econpile won 4 major projects and smaller jobs worth RM155.6mil, bringing its total outstanding order book to RM443.9mil (1.6x FY23F revenue). The job wins of RM155.6mil were below our assumption of RM200mil.

• For FY23F, management targets job replenishment of RM200mil– RM250mil. YTD wins totalled RM50mil, including a RM40mil job to construct and complete piling work at the Immigration, Custom, and Quarantine Complex for RTS Link. The contract was awarded by Ekovest Construction.

• We believe developers are cautious on launching new projects due to high construction costs. This could lead to weaker job wins for piling contractors like Econpile. Hence we have assumed a conservative job replenishment of RM200mil for FY23F. In the near term, potential replenishment includes smallish piling/substructure jobs (<RM50mil) from private property developers.

• Management said it has obtained approval for 250 foreign workers. We believe these workers will arrive by the end of 2022. Econpile commented that labour costs were stable QoQ in 4QFY22. Also, steel prices have fallen by 9% from the peak in Apr/May 2022.

• Challenges faced by Econpile include: (i) weaker-than-expected recovery of job flows; (ii) eroding profit margins from rising building material costs and labour shortages; and (iii) delays/cost revisions of mega projects.

• Econpile is currently trading at an unattractive 13x FY24F PE, above our benchmark of 9x for small-cap construction stocks. Catalysts include job wins in Cambodia or Malaysia.

Source: AmInvest Research - 30 Aug 2022