Summary

• Econpile Holdings Bhd's (Econpile) 1QFY21 net profit fell 36.8% YoY to RM5.6m, dragged down by the additional compliance costs to adhere with the strict operating environment amid the enforcement of Conditional Movement Control Order (CMCO) that affected construction activities progress. Revenue for the quarter declined 24.7% YoY to RM102.0m.

• The reported earnings accounted to 13.5% of our earnings forecast of RM41.5m and 13.8% of consensus forecast of RM40.6m, Meanwhile, the reported revenue was at 21.0% and 21.6% of our and consensus forecast of RM485.3m and RM472.6m respectively. We deem the numbers to be in line as we reckon that works progress to see acceleration in tandem with the pickup in economic activities in the subsequent quarters.

• During the quarter, piling and foundation works for property projects remain as the largest contributor to the group’s revenue, representing 76.6% or RM71.8m of total revenue, with the remainder RM23.8m (23.4%) derived from piling and foundation works for infrastructure projects.

• After a washout year for FY20, we reckon that the jobs flow would pick-up in subsequent quarters following the tabling of Budget 2021 that saw most of the mega infrastructure projects remain on the table. We have imputed an orderbook assumption replenishment of RM300.0m for FY21f.

• As of 1QFY21, Econpile’s is equipped with an unbilled construction orderbook of approximately RM680.0m from 25 on-going projects. 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. The acceleration of mega-infrastructure projects could also be a re-rating catalyst once the local political instability dialled down.

Valuation & Recommendation

• We made no changes to our earnings forecast as we believe that the recovery in subsequent quarters will play catch up to our forecasted figures. Following the depressed share price in recent months, we upgrade Econpile to HOLD (from SELL) with an unchanged target price of RM0.47. We reckon that prospective PER trading at 14.8x for FY21f is deemed to be fair at current juncture.

• Our target price is derived by ascribing an unchanged target PER of 15.0x to its 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 FY21f 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 Nov 2020