Summary

• Econpile Holdings Bhd's unit, Econpile (M) Sdn Bhd has bagged a RM64.3m contract from GDP Architects Sdn Bhd to undertake the the design, construction and completion for bored pile wall and foundation bored pile for a mixed development project at Jalan Raja Chulan, Kuala Lumpur.

• The overall duration of the project is 16 months, commencing in August 2021. Similar with the earlier project announced 2 days ago, 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 premised 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 fifth major construction contract secured by Econpile for FY21f, bringing orderbook replenishment at RM512.0m (inclusive of smaller scale projects that was unannounced) and exceeds our expectations of RM500.0m for the year. Moving into FY22f, we have pencilled a similar orderbook replenishment amount at RM500.0m.

• As a result, Econpile's outstanding orderbook now stands at RM820.0m, which translates to an orderbook-to-cover ratio of 2.0x against FY20 revenue of RM403.0m that will provide earnings visibility over the next 2 years. Despite the Covid-19 pandemic laden year, Econpile’s strong orderbook replenishment is a testament to the strong track record as one of the leaders in the piling and foundation specialist in Malaysia.

• Going forward, we expect projects acceleration to remain on course as new launches from property developers are shifting into higher gear. Elsewhere, Econpile will also be eyeing on a slice from the acceleration of mega-infrastructure projects that may come into the picture in 2H21.

Valuation & Recommendation

• Given that that orderbook replenishment has exceeded our expectations, we raise our earnings forecast for FY22f by 9.9% to RM40.8m (FY21f remain unchanged as the contribution from recent win may only materialise in FY22f).

• Consequently, we maintain our HOLD recommendation on Econpile, but with a higher target price of RM0.44. Our target price is derived by ascribing an unchanged target PER of 15.0x to its revised FY22f EPS of 2.9 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 and higher raw material prices and labour cost. Meanwhile, faster-than-expected project execution could also improve Econpile’s efficiency to deploy existing machineries for future orders.

Source: Mplus Research - 21 May 2021