Summary

• Econpile Holdings Bhd's (ECONBHD) wholly-owned subsidiary, Global Piling  Solutions Co Ltd has received a letter of acceptance from Odom Living Co Ltd to undertake bored pile and diaphragm wall works for Odom development at Norodom  Boulevard, Sangkat Tonle Bassac, Phnom Penh, Kingdom of Cambodia.

• Details of project. The contract value is USD9.5m (c. RM43.8m) with overall project duration for 248 days from 1st June 2023. We gather that the aforementioned contract may generate high single-digit gross margins.

• Orderbook update. With the incorporation of the newly secured contract, orderbook  replenishment for financial year-to-date (YTD) now stands at RM266.7m, which slightly exceeded our expectations of RM200.0m for FY23f. We note that YTD wins already surpassed FY22 wins at c. RM155.6m. The successful completion of the  previous Cambodia project will be a testament for ECONBHD to cement their position in Cambodia over the long run.

• Looking ahead. Moving forward, ECONBHD is equipped with an outstanding orderbook of c. RM410.0m; represents an unbilled orderbook-to-cover ratio at 1.1x  against FY22 revenue of RM366.6m. This is expected to sustain revenue visibility throughout FY24. Meanwhile, the tenderbook remains relatively healthy at approximately RM500.0m. Back home, we reckon that roll-out of mega infrastructure projects may speed up in 2H after the completion of states election. 

• Recovery in progress. In 3QFY23, ECONBHD net loss narrowed to -RM0.2m. We reckon that the group is largely on track to return to the black in coming quarters.  Also, acute workers shortage situation is demonstrating solid improvement and that may speedup project execution process and consequently allows the group to undertake additional projects simultaneously. However, we remain cautious on the elevated building material costs which may keep the margins in check.

Valuation & Recommendation

• Despite the stronger-than-expected orderbook replenishment, we made no changes  to our earnings forecast. We reckon that the recent win may only see contribution  from FY24f onwards.

• Consequently, we maintained our SELL recommendation on ECONBHD with an unchanged target price of RM0.16. Our target price is derived by ascribing a target  PER of 15.0x to its FY24f EPS of 1.1 sen.

• Risks to our recommendation and target price include the stronger-than-expected orderbook replenishment rate. Lower raw material prices and energy cost would improve margins and vice versa. Pace of execution of projects on hand could also determine ECONBHD’s efficiency to deploy existing machineries for future orders.

Source: Mplus Research - 1 Jun 2023