Summary

• Econpile Holdings Bhd's (Econpile) 2QFY22 remained in the red with net loss at RM5.4m vs. a net profit of RM1.8m recorded in the previous corresponding quarter, dragged by losses in certain completed projects and higher steel bar prices. Revenue for the quarter, however, rose 2.1% YoY to RM96.9m.

• For 6MFY22, cumulative net loss stood at RM11.2m; below our initial net profit projection at RM26.3m and consensus target of RM23.0m. Meanwhile, the reported revenue was at 42.0% and 39.9% of our and consensus forecast of RM435.5m and RM458.3m respectively.

• During the quarter, piling and foundation works for property projects remain as the largest contributor to the group’s revenue, representing 91.7% or RM88.9m of total revenue, with the remainder RM8.0m (8.3%) derived from piling and foundation works for infrastructure projects.

• With only a two large-scale projects plus certain smaller-scale projects with total value at RM71.4m secured for the financial year-to-date in FY22f, we have slashed our orderbook replenishment target to RM200.0m (from initial projection of RM300.0m). We gather that tenderbook stands at RM500.0m, mainly in relation to piling and foundation for property development works.

• Moving forward, Econpile is equipped with an unbilled construction orderbook of approximately RM690.0m; representing an unbilled orderbook-to-cover ratio at 1.6x against FY21 revenue of RM420.1m. This will provide earnings visibility over the next two years.

• The Cambodia project and the resumption of local works as all work sites that have resumed operations since mid-August 2021 is expected to anchor the revenue in subsequent quarters. Meanwhile, the tepid orderbook replenishment is expected to remain in place in view that property developers holding after off their launches after the end of Home Ownership Campaign in 2021 and margins are expected to remain compressed by the elevated building material prices.

Valuation & Recommendation

• Following the revision of our orderbook replenishment assumption and taking into account of the margins compression, we trimmed our earnings forecast to RM2.3m and RM30.1m for FY22f and FY23f respectively.

• Despite that, we retained our HOLD recommendation on Econpile, with an unchanged target price of RM0.32 as we rolled over our valuation metrics to FY23f. Our target price is derived by ascribing a target PER of 15.0x to its FY23f 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 projects execution could also determine Econpile’s efficiency to deploy existing machineries for future orders.

Source: Mplus Research - 24 Feb 2022