• Econpile’s 4QFY17 net profit added 12.2% Y.o.Y to RM20.9 mln owing to the higher recognition from its ongoing foundation work projects. Revenue for the quarter gained 22.8% Y.o.Y to RM157.7 mln. For FY17, cumulative net profit increased 19.6% Y.o.Y to RM80.8 mln. Revenue for the year expanded 25.9% Y.o.Y to RM581.9 mln.

• The results were within expectations with its revenue amounting to 97.1% of our full-year forecast of RM599.1 mln, while its net profit came in at 98.5% of our estimate of RM82.0 mln. The slight variance was mainly due to its higher effective tax rate of 27.6% vs. our estimate of 27.0%.  
   
• Econpile’s FY17 gross profit increased 17.9% Y.o.Y to RM130.1 mln, largely due to the higher billings from piling and foundation works for property projects. In FY17, the bulk of its revenue – 91.5% or RM532.3 mln were derived from piling and foundation works on property projects. Going forward, we think that margins are likely to taper marginally owing to the execution of several contracts secured over the past quarters for the piling and foundation works for infrastructure projects that typically yields lower margins.
   
• We expect its EBITDA margin to come in between 22.0%-23.0% (slightly below the 23.6% reported in FY17) in both FY18 and FY19 respectively as we anticipate piling and foundation for infrastructure works to account to approximately 15%-20% of FY18’s total revenue vs. 8.5% of total revenue recorded in FY17. As of FY17, Econpile continues to maintain a sturdy balance sheet with a relatively low net gearing of 0.03x.

Valuation And Recommendation

We tweak our earnings forecast for FY18 and FY19 higher by 6.2% and 4.2% to RM94.7 mln and RM103.5 mln respectively to adjust for lower depreciation charges amid the potentially slower CAPEX in FY18 as several of its projects are already at the tail-end of construction, freeing up some machinery capacity to undertake new projects. We also maintain our HOLD recommendation but with a higher target price of RM3.00 (from RM2.75) by ascribing a higher target PER of 16.0x (from 15.0x) to its revised FY18 EPS of 18.7 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 that 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 - 24 Aug 2017