Investment Highlights

• We maintain SELL on Econpile Holdings (Econpile) with an unchanged fair value (FV) of RM0.12/share based on 9x FY24F PE, in line with our benchmark for small-cap construction stocks. There is no FV adjustment for ESG based on our 3-star rating.

• Econpile achieved a 1HFY23 core net loss (CNL) of RM7mil, compared to our FY23F net profit of RM12mil and consensus’ RM13mil. In spite of the loss, we deem Econpile’s results to be within expectations as the group’s progress billings are expected to pick up in the coming quarters. Also, Econpile’s losses have been declining since 3QFY22.

• CNL narrowed by 42% YoY to RM7mil in 1HFY23. The smaller losses were due to a drop in building material costs and higher gross profit margin from overseas operations.

• On a QoQ basis, CNL declined by 67% to RM2mil in 2QFY23. Revenue grew by 17% QoQ to RM95mil in 2QFY23 on the back of improved progress of ongoing projects. EBITDA margin inched up to 3.2% in 2QFY23 from 0.5% in 1QFY23 on lower building material costs.

• 1HFY23 order book replenishment amounted to RM167mil, which brought outstanding order book to RM434mil as at end-Dec 2022. This translated to a 1.5x FY23F revenue. Notable wins included the ICQC @ RTS Link (RM40mil), Berjaya Residence (RM25mil) and Kota Bahru Medical Centre (RM24mil).

• We maintain an order book replenishment assumption of RM200mil for FY23F. Econpile has a tender book of RM1bil consisting mainly of private property development projects in Malaysia. Econpile is also bidding for a Cambodian project, which may be awarded in 2HFY23.

• Challenges include (i) weaker-than-expected recovery of job flows; (ii) eroding profit margins as building material costs rise and labour shortage persists; and (iii) shelving of mega projects.

• Econpile is currently trading at a pricey 17x FY24F PE, above our benchmark of 9x for small-cap construction stocks, and offers no dividend prospects. Rerating catalysts include major job wins in Cambodia or Malaysia.

Source: AmInvest Research - 24 Feb 2023