Investment Highlights

• We maintain SELL on Econpile Holdings (Econpile) with a higher fair value (FV) of RM0.12/share (from an earlier RM0.08/share), based on a rolled forward 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 has accepted the award from its existing customer, Surimega Development, to undertake substructural works including bored pilings and diaphragm wall works for 3 blocks of small office/home office (SOHO) development comprising 2 50-storey blocks and a 51-storey building with podium and basement carpark floors at Lot PT9451, East-West Link Expressway, Kuala Lumpur.

• The contract value of RM101.4mil is the first large contract win above RM100mil since the Covid-19 pandemic. The works for the projects are split into 3 sections with each section to be completed within 18 months. The date of commencement for Section 1 is 2 October 2023 while the dates of commencement for Section 2 and 3 will be confirmed later. We estimate the contract to generate an annual net profit of RM1mil or 6% of Econpile’s FY25F group earnings.

• However, we make no changes to FY24F-FY26F earnings as the award remain within our replenishment assumption of RM250mil, which is in line with Econpile replenishment target between RM250mil to RM300mil. With this contract, Econpile FY24F YTD new win total is RM197mil, which includes Pinnacle @Subang Jaya SS16 of RM35.1mil and The Park 3@ Bukit Jalil of RM43.4mil.

• 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 24x FY25F PE, above our benchmark of 9x for small-cap construction stocks and offers no dividend prospects.

Source: AmInvest Research - 3 Oct 2023