Investment Highlights

• We keep our forecasts and FV (RM2.16) relatively unchanged and maintain our HOLD recommendation. This follows Econpile’s 9MFY17 results that came in broadly within expectations at 80% and 72% of our fullyear forecast and full-year consensus estimates respectively.

• Our FV is based on 13x FY18F EPS of 16.6 sen, at a slight premium to our 1-year forward target PE of 10-12x for small-cap construction stocks, to reflect a relatively less competitive piling segment vis-à-vis general contracting.

• 9MFY17 net profit grew 22% YoY as the top line expanded 27% YoY on relatively stable margins.

• YTD (FY), Econpile has secured new jobs worth a total of RM1.19bil (vs. our full-year assumption of RM1.2bil), underpinned largely by the RM570.4mil foundation and basement structure works for Pavilion Damansara Heights – the biggest contract it has secured ever.

• During a recent analyst briefing, Econpile guided for job wins normalising to RM600-700mil annually from FY18F onwards (which is consistent with our assumption of RM600mil annually). Recall, Econpile secured RM627mil new jobs in FY16.

• Econpile is confident of sustaining its overall margins (>20% at the gross level). This will be achieved with: (1) the provision of alternative design (that will result in cost savings) to the Pavilion Damansara Heights project; (2) the lower number of projects it manages at any one point, as it moves towards larger projects (it now has about 18 ongoing projects, vs. 25-26 previously); and (3) a more stable input cost as steel bar prices have stabilised (steel makes up about 20-30% of total input cost), while cement prices remain depressed.

• We like Econpile for its strong earnings visibility backed by the bright prospects of the piling/foundation segment coupled with its sizeable order backlog which will keep it busy for the next 12-24 months. The entry barrier to the sector is high given the high costs of equipment and machinery, as well as the limited availability of experienced operators.

• However, at the current price, we believe the market has very much priced in Econpile’s fundamentals.

Source: AmInvest Research - 29 May 2017