Summary

• Econpile Holdings Bhd's unit, Econpile (M) Sdn Bhd, has bagged a USD85.7m (c.RM347.6m) contract from MCC International Incorporation Ltd. The contract entails piling and substructure works for an Integrated Entertainment Complex at Phnom Penh, Kingdom of Cambodia.
• The overall duration of the contract is about 30 months and works are expected to commence upon notification. We believe that the aforementioned project will generate low-teens EBITDA margins, which is slightly lower against the historical average for piling works in high rise property development projects due to the relatively large scale project value. This also marks the first overseas major contract secured by Econpile for FY21.
• With the local construction scene has hit a snag since 2018, Econpile’s geographical diversification bodes well over the long term in aspiration to become a key niche construction player in the Asia region. The latest win bumps Econpile's orderbook replenishment to c.RM369.0m; representing 92.3% of our forecast of RM400.0m.
• Consequently, outstanding orderbook has now risen to approximately RM1.00bn, which translates to an orderbook-to-cover ratio of 2.5x against FY20 revenue of RM403.0m that will provide earnings visibility till FY23. We remain sanguine that earnings recovery will be materialise in coming quarters on the back of the resumption of physical works as well as the supply chain such as concrete, cement, steel and etc.
• The latest win is also a testament to Econpile’s established track record in the local scene and has subsequently gained recognition internationally. Meanwhile, their past strong executions will place Econpile as one of the forerunners in bidding for the impending rollout of mega-infrastructure projects.

Valuation & Recommendation

• With Econpile’s orderbook replenishment is a hair away from our estimates; we have imputed a higher orderbook replenishment assumption of RM500.0m for FY21f (previously at RM400.0m). Consequently, we raised our earnings forecast by 16.2% and 16.9% to RM48.2m and RM5.6m for FY21f and FY22f respectively.
• While we rolled over our valuation metrics to FY22f, we retained our HOLD recommendation Econpile with a higher target price RM0.58. Our target price is derived by ascribing an unchanged target PER of 15.0x to its FY22f EPS of 3.9 sen.
• 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 - 15 Dec 2020