Summary

• Econpile Holdings Bhd's unit, Econpile (M) Sdn Bhd has bagged a RM27.1m contract from Satin Magic Sdn Bhd to undertake the demolition, site clearance, earthworks, site works and reinforced concrete works for a 7-storey luxurious apartment with 3- storey basement at Bukit Damansara, Kuala Lumpur.

• The overall duration of the project is 15 months, commencing in June 2021. We believe that the aforementioned project will generate low-teens EBITDA margins, which is slightly lower than the historical average for piling works in high rise property development projects over the years. This is due to the rising raw material costs and operational cost arising from the compliance to the standard operating procedures amid the on-going Covid-19 pandemic.

• The latest win marks the fourth major contract secured by Econpile for FY21f, bringing orderbook replenishment at RM428.4m, which makes up to 85.7% our assumption of RM500.0m for the year. We have also imputed an orderbook replenishment of RM500.0m for FY22f

• Thereafter, Econpile's outstanding orderbook rose to approximately RM900.0m, which translates to an orderbook-to-cover ratio of 2.2x against FY20 revenue of RM403.0m that provide earnings visibility over the next 2 years. Following the strong earnings recovery demonstrated in 1HFY21, we expect subsequent quarters to remain sturdy, backed by the stabilising orderbook replenishment in recent quarters.

• Going forward, we expect property developers to be more aggressive in new launches as economic recovery remains on track with the rollout of Covid-19 vaccine. At the same time, Econpile will be eyeing on a slice from the acceleration of mega-infrastructure projects, particularly in 2H21.

Valuation & Recommendation

• Given that that orderbook replenishment falls within our expectations, we leave our earnings forecast unchanged. Therefore, we maintain our HOLD recommendation on Econpile with an unchanged target price of RM0.40, pending the upcoming quarterly results release (3QFY21), tentatively on 28th May 2021.

• Our target price is derived by ascribing an unchanged target PER of 15.0x to its FY22f EPS of 2.6 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 - 19 May 2021