Summary

• Econpile Holdings Bhd's (ECONBHD) long-term prospects appear to be on the recovery trend after experiencing a year to forget in FY22f. Recall that in 3QFY23 net loss narrowed to -RM0.2m vs. net loss of -RM1.3m recorded in 2QFY23. After 7 consecutive quarters in the red, we reckon that the group is poised to return to the black moving into FY24.

• The expected recovery will be supported by the improved orderbook replenishment during FY22 at RM223.0m against FY21 at RM155.6m. While projects secured since FY21 were relatively small scale (less than RM50.0m each), we expect larger works to be revealed only at 4QFY23 or in 1HFY24. This is in anticipation with the conclusion of the state elections, awards of construction packages under the mega infrastructure projects may accelerate post Budget 2024.

• We reckon that the alleviation of acute labour shortage will allow ECONBHD to participate in multiple projects simultaneously. In the meantime, the normalising of building material prices also bodes well for margins improvement. Still, we expect margins to remain at single digit, given that inflationary pressure (higher larbour costs and building material prices remains on the higher end against pre-Covid-19 level) remains at large.

• For now, ECONBHD, will be kept busy with an outstanding orderbook of c. RM400.0m that 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.

• While trading activities improved in recent months in anticipation that the construction sector may shift into higher gear, we reckon that valuations are fairly stretched with the group trading at prospective FY24f PER of 26.7x. This is higher against the Bursa Malaysia construction sector that is trading at forward PER of 14.8x and 12.3x in 2023f and 2024f respectively.

• Therefore, we are ceasing coverage on ECONBHD due to reallocation of internal resources. Our last recommendation on ECONBHD was SELL with a fair value at RM0.16. The fair value was derived by ascribing a target PER of 15.0x to its FY24f EPS of 1.1 sen.

Source: Mplus Research - 28 Aug 2023