Summary

• Econpile Holdings Bhd's (Econpile) 1QFY22 net loss stood at RM5.8m vs. a net profit of RM5.6m recorded in the previous corresponding quarter, dragged by the multiple lockdowns from June 2021 till mid-August 2021, coupled with the higher steel bar prices. Revenue for the quarter declined 15.7% YoY to RM86.0m.

• Although we expect a recovery to take place in subsequent quarters, we deem the reported figures to be below expectations, which would take a mammoth effort to meet our projected net profit of RM33.4m and consensus target of RM30.7m. Meanwhile, the reported revenue was at 16.5% and 18.0% of our and consensus forecast of RM519.8m and RM478.0m respectively.

• During the year, piling and foundation works for property projects remain as the largest contributor to the group’s revenue, representing 76.6% or RM78.1m of total revenue, with the remainder RM23.8m (23.4%) derived from piling and foundation works for infrastructure projects.

• After bagging some RM512.0m worth of jobs in FY21 (inclusive of the large scale RM347.6m job in Cambodia), we reckon that jobs replenishment will start to slowdown. Moving into FY22f, we have pencilled a RM300.0m worth of orderbook replenishment, mainly from the property sector recovery as new launches gather pace.

• Already, Econpile has bagged a contract from Tunku Abdul Rahman University College worth RM22.7m (7.6% of our targeted orderbook replenishment) in 1QFY22. Moving forward, Econpile is equipped with an unbilled construction orderbook of approximately RM820.0m; representing an unbilled orderbook-to cover ratio at 2.0x against FY21 revenue of RM420.1m that provide earnings visibility over the next two years.

• Meanwhile, we foresee earnings recovery in subsequent quarters are expected to be anchored by the acceleration of the Cambodia project in FY22f, coupled with the resumption of local works as all work sites have resumed operations since mid August 2021.

Valuation & Recommendation

• With the reported earnings came in below expectations, we trimmed our earnings forecast by 11.8% and 10.0% to RM29.5m and RM38.1m for FY22f and FY23f respectively to reflect the uneven recovery progress.

• Consequently, we maintain our HOLD recommendation on Econpile, but with a lower target price of RM0.32 (from RM0.36). Our target price is derived by ascribing a target PER of 15.0x to its FY22f EPS of 2.1 sen.

• 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. The pace of project execution could also determine Econpile’s efficiency to deploy existing machineries for future orders.

Source: Mplus Research - 30 Nov 2021