Results Highlights

• Econpile’s 3QFY17 net profit grew 23.6% Y.o.Y to RM22.1 mln, backed by advanced billings from several existing projects, coupled with higher recognition from newly secured projects. Revenue for the quarter rose 32.9% Y.o.Y to RM162.3 mln. For 9MFY17, cumulative net profit improved 22.0% Y.o.Y to RM59.9 mln. Revenue for the period increased 27.1% Y.o.Y to RM424.3 mln.

• The results were within expectations with its revenue amounting to 70.8% of our full-year forecast of RM424.2 mln, while its net profit was at 73.1% of our estimate of RM59.9 mln.

• Econpile’s 9MFY17 gross profit increased 17.0% Y.o.Y to RM97.5 mln, owing to the higher billings from piling and foundation works for property projects which yield better margins compared to infrastructure projects. As of 9MFY17, 92.3% or RM391.7 mln of the group’s revenue were derived from piling and foundation works on property projects. We think that margins are likely to taper marginally, as 24.7% or RM294.3 mln of its contracts secured year-to-date was for the piling and foundation works for infrastructure projects.

• Hence, we expect its EBITDA margin to come in between 21.0%-22.0% (slightly below the 23.0% reported in 9MFY17) in both FY17 and FY18 respectively as we anticipate piling and foundation for infrastructure works (which typically yields lower margins) to account to approximately 15%-20% of FY18 total revenue vs. 7.7% of total revenue recorded in FY17. As of 3QFY17, Econpile continues to maintain a healthy balance sheet with a net cash position of RM13.9 mln. A dividend of 3.0 sen per share for the quarter was declared.

Prospects

We note that Econpile has secured two major contracts in 3QFY17, collectively worth RM141.0 mln. Econpile’s orderbook replenishment now stands at RM1.19 bln year-todate (significantly above FY16’s orderbook replenishment rate of RM627.3 mln) and is within our orderbook replenishment assumption of RM1.20 bln for FY17. Moving forward, earnings growth will be backed by approximately RM1.40 bln of unbilled construction orderbook from 20 on-going projects. This implies an orderbookto-cover ratio of 3.0x against FY16 revenue of RM462.1 mln, which will provide earnings visibility over the next 2-3 years (see Appendix 1). We think that Econpile’s prospects remain resilient, capitalising on the reiteration of big ticket projects under Budget 2017. The group is tendering for over RM1.0 bln worth of piling and foundation works (approximately 30% for infrastructure projects, while the remaining 70% are for work on property development projects) such as the DUKE Extension, East Coast Rail Link and Pavilion Damansara Heights 2. For FY18, we have imputed a lower orderbook replenishment assumption of RM700.0 mln, which is lower as it was resulted from the award of the relatively high value Pavilion Damansara project. Moving forward, Econpile will also allocate RM25.0-RM35.0 mln for CAPEX expansion in FY18.

Valuation And Recommendation

With the earnings came within our expectations, we leave our earnings forecast unchanged. We maintain our HOLD recommendation with a higher target price of RM2.50 (from RM2.35) by ascribing a higher target PER of 14.0x (from 13.0x) to its FY18 EPS of 18.0 sen. The ascribed PER is in tandem with the general uptick in the construction sector’s valuations. Risks to our recommendation and target price include inability to meet our targeted orderbook replenishment rate of RM700.0 mln for FY18. Rising raw material prices and labour cost could dampen margins going forward. Any delay in project completion could also damage Econpile’s reputation as one of the leaders in the piling and foundation companies in Malaysia and its ability to secure future contracts.

Source: Mplus Research - 1 Jun 2017