Summary

• Econpile Holdings Bhd's (ECONBHD) wholly-owned subsidiary, Econpile (M) Sdn Bhd has received a letter of award from Konzepte + Design Architects for and on behalf of Regal Path Sdn Bhd to undertake substructure works for 2 blocks of 47-storey serviced apartment comprising 453 units, with existing commercial development 1 block of 5-storey retail mall with 2 levels of basement parking.

• Details of project. The project located at Bukit Jalil, Kuala Lumpur carries a contract value is RM43.4m with overall project duration for 15 months. We gather that the aforementioned contract may generate high single-digit gross margins, which is similar to recent projects wins for high-rise developments.

• Orderbook update. With the incorporation of the newly secured contract, orderbook replenishment for FY24 year-to-date (YTD) now stands at RM78.5m, which accounts to 26.2% of our expectations of RM300.0m for FY24f. The target could be achievable in coming 11 months, premised to the potential acceleration of mega infrastructure projects rollout upon completion of the States election next month.

• Looking ahead. Moving forward, ECONBHD is equipped with an outstanding orderbook of c. RM400.0m; represents an unbilled orderbook-to-cover ratio at 1.1x against FY22 revenue of RM366.6m. This is expected to sustain revenue visibility throughout the next 18 months. We reckon that ECONBHD will continue to leverage onto the improved economic outlook with the construction sector playing catch-up in the recovery trend, while seeking to broaden their revenue base in regional markets, after cementing their footprint at Cambobia.

• Recovery in progress. In 3QFY23, ECONBHD net loss narrowed to -RM0.2m (from net loss of -1.6m in 2QFY23). The improved labour situation in recent months also bode well for project execution process and consequently allows the group to undertake additional projects simultaneously. Still, the elevated building material costs may keep the margins thin over the foreseeable future.

Valuation & Recommendation

• Given that the orderbook replenishment came within expectations, we made no changes to our earnings forecast.

• 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. At current price of RM0.21, prospective FY24f P/E is at 19.4x, which is pricier than the Bursa Malaysia’s construction sector forward P/E of 11.8x for 2024.

• 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 - 26 Jul 2023