Summary

• Econpile Holdings Bhd's (ECONBHD) 1QFY23 net loss narrowed to RM4.8m vs. a net loss of RM5.8m recorded in the previous corresponding quarter, mainly due to higher contribution from Cambodia project that yields better margins and stabilising building material costs. Revenue for the quarter, however, fell 4.8% YoY to RM81.9m.

• The reported figures remain a distance against our expected net profit of RM14.3m in FY23f. Still, we reckon that recovery is on the cards, premised to the normalising building material costs, while the labour shortage issue may gradually resolve.

• In 1QFY23, cash balances stood at RM52.1m and net gearing at 0.1x implies that there are room to tap into external financing to fund working capital purpose in bid to overcome the tough operating landscape.

• ECONBHD has secured some RM108.0m worth of contracts year-to-date. This makes up to 43.2% of our orderbook replenishment target of RM250.0m for FY23f. Future job wins may continue to skew towards the piling and foundation works for property sector, given that the newly elected government will take some time to settle in before the focus shifting towards mega-infrastructure related projects.

• As of end-FY22, ECONBHD is equipped with an unbilled construction orderbook of approximately RM442.8m from 20 on-going projects; representing an unbilled orderbook-to-cover ratio at 1.2x against FY22 revenue of RM373.4m. This will sustain their revenue over the next 18 months.

• On a brighter note, the price index per unit of steel fell 1.3% YoY in October 2022, according to the building and structural work, department of statistics Malaysia. Despite the normalising of steel prices in recent months, concrete price remains at an elevated level and that continues to bog down margins overtime.

• We gather that some 100 foreign workers have gotten approval and will be arriving in December 2022. The move bodes well to speed up the execution of works on hand and allows ECONBHD some flexibility to participate in additional projects.

Valuation & Recommendation

• Despite the underperformance in 1QFY23 results, we made no changes for our earnings forecast for FY23f. We reckon that recovery is on the cards in subsequent quarters, premised to the execution of orderbooks secured in recent months.

• We maintained our HOLD recommendation on ECONBHD with an unchanged target price of RM0.15. Our target price is derived by ascribing a target PER of 15.0x to its FY23f EPS of 1.0 sen.

• Risks to our recommendation and target price include the weaker-than-expected orderbook replenishment rate. Higher raw material prices and labour cost would potentially dent margins and vice versa. The pace of execution of projects on hand could also determine ECONBHD’s efficiency to deploy existing machineries for future orders.

Source: Mplus Research - 30 Nov 2022