Investment Highlights

• We maintain SELL on Econpile Holdings (Econpile) with an unchanged fair value (FV) of RM0.11/share based on a rolledforward FY25F PE of 9x, 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 expectations due to weak margins resulting from higher-than-expected costs. The group achieved a FY23 core net loss (CNL) of RM32mil, compared to our earlier FY23F net profit of RM5mil and consensus’ RM7mil. As such, we reduce FY24F earnings by 20%.

• FY23 CNL declined by 11% YoY to RM32mil due to higher gross profit from ongoing construction projects and labour improvement. FY23 revenue increased 3% YoY from piling and foundation services for development projects. Despite that, net operating cost doubled YoY, resulting in higher loss before interest tax & depreciation (LBITDA ) of RM15mil vs. FY22 LBITDA of RM6mil.

• Sequentially, 4QFY23 net loss soared to RM23mil from RM2mil in 1QFY23 due to increasing cost of sale and net operating cost despite a 6% QoQ increase in revenue.

• Econpile’s outstanding order book amounted to RM475.7mil as at end-June 2023, a 17% increment compared to previous quarter. This translates to a reasonable 1.6x FY23F revenue. There are 25 on-going projects at various stage of completion including notable wins such as ICQC @ RTS Link (RM40mil), Berjaya Residence (RM25mil), Kota Bahru Medical Centre (RM24mil) and Bangsar Hill Development (RM21mil). Econpile has also won a RM44mil contract in Cambodia 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 27x FY25F PE, above our benchmark of 9x for small-cap construction stocks and offers no dividend prospects.

Source: AmInvest Research - 30 Aug 2023