Summary

• Econpile Holdings Bhd's (Econpile) wholly-owned subsidiary, Econpile (M) Sdn Bhd has received a Letter of Award dated 12th April 2022 from CJ Synergy Sdn Bhd to undertake the foundation and basement works for a 5-storey industrial building with single M&E at roof level and 3-storey basement carpark at Petaling Jaya Selangor. The contract value is RM23.0m.

• The overall duration of the contract is 9 months and works are expected to commence from 18th April 2022. We believe that the aforementioned project will be able to command approximately 10-15% EBITDA margins, which is slightly lower than the historical average of piling works for high rise property development projects over the years. The expected margins compression takes into account of the rising raw material costs and operational cost.

• The aforementioned contract marks the second major construction contract secured by Econpile for FY22f. Current orderbook replenishment now stands at RM108.0m, makes up to only 54.0% of our expectations of RM200.0m for the year. While, the figure falls short of our expectations with only slightly more than 2 months before the end of the financial year 2022, we think that outlook turn better, moving into the later part of the year.

• Consequently, Econpile's outstanding orderbook of approximately RM650.0m; representing an unbilled orderbook-to-cover ratio at 1.5x against FY21 revenue of RM420.1m. This will provide earnings visibility over the next two years. Meanwhile, tenderbook remains relatively healthy at approximately RM500.0m.

• We believe that Econpile will be able to leverage onto the acceleration of mega infrastructure projects towards 2H22. At the same time, property developers that held back their launches over the past 2 years may also turn slightly more aggressive over the foreseeable future. Already, we note that the property market demonstrated green shoots of recovery in 2021 after recording 300,497 (+1.5% YoY) property transactions worth RM144.87bn (+21.7% YoY).

• We gather that Malaysia’s value of construction work completed fell -5.0% YoY to RM112.0bn. Nevertheless, we reckon that recovery is largely on the cards alongside with the economic recovery in 2022, while work activities gradually returns to the norm. Still, we remain cautious over the escalating building material prices and rise in minimum wages may dampen contractors’ margins.

Valuation & Recommendation

• Given that the orderbook replenishment falls within our expectations, we make no changes to our earnings forecast. We maintained our HOLD recommendation on Econpile with an unchanged target price of RM0.32. 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 weaker-than-expected orderbook replenishment rate and higher raw material prices and labour cost. Meanwhile, slower-than-expected project execution could also deter Econpile’s efficiency to deploy existing machineries for future orders.

Source: Mplus Research - 18 Apr 2022