Summary

• Econpile Holdings Bhd's (Econpile) 2QFY21 net profit sank 78.8% YoY to RM1.8m, due one-off administrative expenses, coupled with the slower construction work progress. Revenue for the quarter declined 31.1% YoY to RM94.9m. For 6MFY21, cumulative net profit slipped 57.6% YoY to RM7.4m. Revenue for the period fell 27.9% YoY to RM196.9m.

• The reported earnings came below expectations, accounted to 17.9% of our earnings forecast of RM41.5m and 18.3% of consensus forecast of RM40.6m. Meanwhile, the reported revenue was at 40.6% and 41.7% of our and consensus forecast of RM485.3m and RM472.6m respectively.

• During the quarter, piling and foundation works for property projects remain as the largest contributor to the group’s revenue, representing 78.7% or RM74.7m of total revenue, with the remainder RM20.2m (21.3%) derived from piling and foundation works for infrastructure projects.

• We note that Econpile has secured several major contracts both in Malaysia as well as its maiden venture into Cambodia. With that, Econpile’s orderbook replenishment now stands at RM401.0m, largely on track to meet our orderbook replenishment assumption of RM500.0m for FY21f.

• As of 2QFY21, Econpile’s is equipped with an unbilled construction orderbook of approximately RM930.0m from 23 on-going projects. Moving forward, the group’s unbilled orderbook-to-cover ratio at 2.3x against FY20 revenue of RM403.0m will provide earnings visibility over the next three 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. While the rollout of new local mega infrastructure projects has yet to see any significant progress, Econpile has turned its attention to neighbouring countries in the Asia region.

Valuation & Recommendation

• With the reported earnings coming below our forecast, we slashed our earnings estimates by 50.8% and 19.0% to RM20.4m and RM37.1m for FY21f and FY22f respectively, taking into account of the one-off expenses incurred in 2QFY21, coupled with the slower work progress. Consequently, we downgrade Econpile to HOLD (from BUY), with a lower target price of RM0.40 (from RM0.55).
• Our target price is derived by ascribing a target PER of 15.0x to its FY22f EPS of 2.6 sen. We reckon that prospective PERs trading at 29.8x and 16.4x for FY21f and FY22f are fairly stretched at current juncture.
• Risks to our recommendation and target price include the ability to achieve our targeted orderbook replenishment rate. Higher raw material prices and labour cost would potentially dent margins and vice versa. Pace of project execution could also determine Econpile’s efficiency to deploy existing machineries for future orders.

Source: Mplus Research - 25 Feb 2021