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 are no FV adjustments for ESG based on our 3-star ESG rating.

• We deem Econpile’s 1QFY24 results as within expectations with a narrowing 1QFY24 core net loss (CNL) of RM3mil despite our FY24F net profit of RM8mil and consensus’ RM11mil. As we believe revenue will ramp up over the next quarters from higher recognition of progress billing in piling projects, our FY24F-26F earnings are maintained.

• On YoY basis, 1QFY24 CNL narrowed by 30% from RM5mil in 1QFY23 due to a 47% YoY jump in construction revenue from RM82mil to RM121mil mainly from its piling and foundation services for property development projects. Despite the jump in revenue, higher finance cost and residual cost pressures from projects secured in the previous year led to the smaller loss.

• Sequentially, 1QFY24 net loss fell significantly by 86% QoQ to RM3mil from RM25mil in 4QFY23 due to an 18% increase in piling work recognition and lower operating cost as residual costs from property development projects secured in FY23 are at the tail-end of the cycle.

• Econpile’s outstanding order book decreased by 12% QoQ to RM416.6mil as at end-September 2023 due to lower new contracts secured against higher progress billings. Even so, this still translates to a reasonable 1.2x FY24F revenue.

• There are 27 on-going projects at various stages 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 also won a RM44mil contract in Cambodia in 1HFY23.

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

• Econpile is currently trading at a pricey FY25F PE of 24x, above our benchmark of 9x for small-cap construction stocks and offers no dividend prospects.

Source: AmInvest Research - 30 Nov 2023