Summary

• Econpile Holdings Bhd's 4QFY20 net loss stood at RM16.5m vs. a net profit of RM23.2m recorded in the previous corresponding quarter, dragged down by the enforcement of Movement Control Order (MCO) that affected construction activities. Revenue for the quarter sank 82.6% YoY to RM30.7m.

• For FY20, cumulative net profit tumbled 90.9% YoY to RM2.3m. Revenue for the year declined 39.2% YoY to RM403.0m. Both the reported earnings and revenue came below our expectation, amounting to 16.0% and 81.7% of our estimates at RM14.6m and RM493.3m respectively. The reported numbers were also below consensus forecast of RM19.4m in net profit and RM415.0m in revenue.

• In FY20, piling and foundation works for property projects remain as the largest contributor to the group’s revenue, representing 70.2% or RM283.0m of total revenue, with the remainder RM120.0m (29.8%) derived from piling and foundation works for infrastructure projects. In view of the sluggish corporate earnings, no dividend was declared for FY20.

• Together with the two major contracts secured in 4QFY20, Econpile’s orderbook replenishment at c.RM300.0m, this is in line with our expectations. We see jobs flow remain downbeat in FY21f owing to the unresolved political agenda, which we have imputed an orderbook assumption replenishment of RM300.0m.

• As of FY20, Econpile’s is equipped with an unbilled construction orderbook of approximately RM670.0 m from 23 on-going projects, we reckon that recovery to pick up in FY21 on the back of resumption of work orders. Moving forward, the group’s unbilled orderbook-to-cover ratio at 1.4x against FY20 revenue of RM403.0m will provide earnings visibility over the next two years.

• Econpile will continue to tender for property-related projects in the Klang Valley which is in line with the group’s core expertise in delivering piling and foundation works. At the same time, the acceleration of mega-infrastructure projects that is likely to take place post Budget 2021 could also be a re-rating catalyst.

Valuation & Recommendation

• With the reported earnings falling short of our forecast, we trimmed our earnings estimates for FY21f and FY22f by 8.7% and 7.9% to RM41.1m and RM29.0m respectively due to the challenging operating landscape. We maintained our SELL recommendation on Econpile with a lower target price of RM0.47 (from RM0.51). We reckon that prospective PERs trading at 19.7x and 29.7x for FY21f and FY22f respectively are deemed to be fairly stretched at current juncture.
• Our target price is derived by ascribing an unchanged target PER of 15.0x to its revised FY21f EPS of 3.1 sen. Nevertheless, we believe that a potential re-rating is in the cards, should Econpile’s orderbook replenishment exceed our assumption at RM300.0m for FY21 or margins to come above our assumptions.
• Risks to our recommendation and target price include stronger-than-expected orderbook replenishment rate. Lower raw material prices and labour cost would potentially improve margins. Faster-than-expected project execution could also improve Econpile’s efficiency to deploy existing machineries for future orders.

Source: Mplus Research - 27 Aug 2020