Investment Highlights

• We maintain SELL on Econpile Holdings (Econpile) with a lower fair value (FV) of RM0.11/share (vs RM0.13/share previously) based on 9x FY24F PE, in line with our benchmark for small-cap construction stocks. There are no FV adjustments for ESG based on our 3-star ESG rating.

• Econpile’s results were below our expectations. The group achieved a 9MFY23 core net loss (CNL) of RM9mil, compared to our FY23F net profit of RM13mil and consensus’ RM7mil. Econpile’s results were below our forecast due to weak margins resulting from higher-than-expected costs. As such, we reduce our earnings estimates for FY23F by 46% and FY24F by 19%.

• CNL fell 69% YoY to RM9mil in 9MFY23. The smaller losses were due to higher gross profit from ongoing construction projects, stabilising building material costs, and improvement in labour supply.

• On a QoQ basis however, CNL widened 28% QoQ to RM2mil in 3QFY23, dragged by lower margins from projects nearing completion and losses from completed projects. EBITDA margin slipped to 2% in 3QFY23 from 3.2% in 2QFY23.

• 9MFY23 order book replenishment amounted to RM222.9mil, which brings the outstanding order book to RM405mil as at end-Mar 2023. This translates to 1.4x FY23F revenue. Notable wins included ICQC @ RTS Link (RM40mil), Berjaya Residence (RM25mil), Kota Bahru Medical Centre (RM24mil) and Bangsar Hill Development (RM21mil).

• We maintain an FY23F order book replenishment assumption of RM250mil, backed by 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 15x FY24F PE, above our benchmark of 9x for small-cap construction stocks and offers no dividend prospects. Potential rerating catalysts include major job wins in Cambodia or Malaysia.

Source: AmInvest Research - 25 May 2023