Summary

• Econpile Holdings Bhd's wholly-owned subsidiary, Econpile (M) Sdn Bhd has received a Letter of Acceptance dated 12th November 2021 from Cosmo Property Management Sdn Bhd to undertake the construction and completion of sub structure works for a mixed development project at Damansara, Selangor valued at RM33.2m.

• The overall duration of the contract is 15 months with commencement to be notified at later date. We believe that the aforementioned project will generate approximately 10-13% EBITDA margins, which is slightly lower than the historical average for piling works in high rise property development projects over the years. The reduction is mainly due to higher raw material prices, coupled with the additional costs in compliance with Covid-19 SOP.

• The aforementioned contract marks the second major construction contract secured by Econpile for FY22f. Current orderbook replenishment of RM55.9m now makes up to 18.6% of our expectations of RM300.0m for the financial year. Consequently, Econpile's outstanding orderbook of approximately RM880.0m, which translates to an orderbook-to-cover ratio of 2.1x against FY21 revenue of RM420.1m will provide earnings visibility over the next 18 months.

• We believe that there will be more property-related works to come by, particularly in 2022 as property developers begun to accelerate their launches after the recent delays. This is in tune with Econpile’s aim to secure relatively smaller scale contracts, targeting below RM50.0m over the foreseeable future.

• At the same time, Econpile will be able to ride onto the higher development spending under Budget 2022. Some of the key infrastructure projects include the construction of low-cost housing projects as well as the continuation of Pan Borneo Highway, Central Spine Road and Klang Valley MRT.

Valuation & Recommendation

• Given the orderbook replenishment falls within our expectations, we make no changes to our earnings forecast, pending the release of its upcoming 2QFY22 results, tentatively by end of this month.

• We maintained our HOLD recommendation on Econpile with an unchanged target price of RM0.36. Our target price is derived by ascribing a target PER of 15.0x to its FY22f EPS of 2.4 sen.

• 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 - 16 Nov 2021