Summary

• Econpile Holdings Bhd's unit, Econpile (M) Sdn Bhd, has bagged a RM27.9m contract from Cenang Resort Sdn. Bhd. The contract comprises two packages whereby Package 1 (Phase 1 & 2) entails the design and build of piling and pilecap works for service apartment and villa. Meanwhile, Package 2 (Phase 3) entails the design and build of piling and pilecap works for hotel.

• The overall duration of Package 1 is 12 months, whilst works for Package 2 will be 12 months as well, upon notification of commencement. We believe that the aforementioned project will generate mid-teens EBITDA margins in line with historical average for piling works in high rise property development projects. This also marks the third major contract secured by Econpile for FY21f, bringing orderbook replenishment at RM401.0m, which makes up to 80.2% our assumption of RM500.0m for the year.

• The latest win bumps Econpile's outstanding orderbook of approximately RM950.0m, which translates to an orderbook-to-cover ratio of 2.4x against FY20 revenue of RM403.0m that provide earnings visibility over the next 2 years. Following the washout year in FY20, we believe that earnings recovery is largely on track with construction activities begun to normalise which was already demonstrated in 1QFY21.

• Going forward, we reckon that property developers are expected to be slightly more aggressive in launching new developments, particularly in 2H21 upon the arrival of Covid-19 vaccine. Hence, we expect Econpile will be able to tap on the aforementioned recovery, whilst the acceleration of mega-infrastructure projects over the foreseeable future is will be a boost to the overall construction industry.

Valuation & Recommendation

• Given that that orderbook replenishment is within our expectations, we leave our earnings forecast unchanged. We maintain our BUY recommendation on Econpile with an unchanged target price of RM0.55, pending the upcoming quarterly results release (2QFY21), tentatively on 25th February 2021.

• Our target price is derived by ascribing an unchanged target PER of 15.0x to its FY22f EPS of 3.6 sen. The assigned PER is a slight premium to the small-mid cap construction peers due to Econpile’s niche business as a piling and foundation specialist.

• Risks to our recommendation and target price include weaker-than-expected orderbook replenishment rate. Meanwhile, lower raw material prices and labour cost would potentially improve margins and faster-than-expected project execution could also improve Econpile’s efficiency to deploy existing machineries for future orders.

Source: Mplus Research - 22 Feb 2021