Investment Highlights

• We maintain our HOLD call, keep our forecasts relatively unchanged, but raise our FV by 3% to RM2.22 (from RM2.16) as we roll forward our valuation base year to CY18 from FY18. Our FV is now based on 13x CY18F EPS of 17.1sen, 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.

• Econpile’s FY17 results beat our forecast by 8% but met consensus estimates. The variance against our forecast came largely from slightly stronger-than-expected billings.

• FY17 net profit grew 20% YoY as the top line expanded 26% YoY on relatively stable margins.

• Econpile ended FY17 with job wins worth a total of RM1.19bil (in line with our 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 in FY18-20F). 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: (1) via the provision of alternative design (that will result in cost savings) to the Pavilion Damansara Heights project; (2) by virtue of it now having a lower number of projects to manage 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 with steel bar prices having 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 of RM1.2bil (Exhibit 2) 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 - 24 Aug 2017