• Econpile Holdings (Econpile) has received a letter of acceptance of RM24mil from Kota Bharu Medical Centre to undertake the execution and completion of substructure works for a private hospital comprising a 12-storey hospital block and an 11-storey carpark block with other facilities at Bandar Kota Bahru Jajanhan in Kota Bharu, Kelantan.

• The project will be carried out over 12 months from 21 Nov 2022, contributing total EBIT of RM2mil, with the bulk of earnings to be recognised in FY23F. Nevertheless, our forecasts are unchanged as this award is within our FY23F order book assumption of RM200mil.

• During our previous engagement with management, Econpile said that the rising cost of building materials has already been accounted for in new tenders. We believe most building material costs have reached its peak in 2Q2022. We also expect labour shortages to ease over the remainder of 2022.

• We are also mindful of the huge local supply of high-rise residential, retail mall and office developments 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 Mass Rapid Transit (MRT) 3. Recall that the company received a RM43.5mil project to undertake bored piled works for the MRT2 back in 2016.

• Econpile currently trades at an unattractive valuation of 16x FY23F PE, above our benchmark of 9x for small-cap construction stocks. Hence, we maintain our SELL call.

Source: AmInvest Research - 1 Nov 2022