Investment Highlights

• We maintain our forecasts, FV of RM2.22 and HOLD call. Our FV is 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 1QFY18 results came in within expectations at 24% and 22% of our full-year forecasts and full-year consensus estimates respectively.

• 1QFY18 net profit grew 29% YoY as the top line expanded 48%, partially eroded by a 2ppt drop in EBIT margin and a higher effective tax rate.

• During a recent analyst briefing, Econpile reiterated its guidance for new job wins normalising to RM600-700mil in FY18F (vs. actual job wins of RM1.19bil and RM662mil in FY17 and FY16 respectively). This is consistent with our assumption of RM600mil annually in FY18-20F. Thus far in FY18, Econpile has secured new jobs worth a total of RM275mil. Its outstanding orde rbook stands at RM1.5bil based on our estimates (Exhibit 2).

• Econpile is eyeing, among others, foundation work for Bukit Bintang City Centre (Phase 2 worth about RM100mil involving largely the construction of "connecting tunnels"), Pavilion Damansara Heights (Phase 2 worth about RM200mil), East Coast Rail Link (with an estimated value of RM7bil in total) and PR1MA housing (which requires more extensive piling and larger-diameter piles, as it moves towards high-density developments of up to 50 storeys).

• Econpile is confident about sustaining its overall margins (>20% at the gross level). It hopes to achieve this via "better efficiency" derived from the two ongoing mega property foundation jobs, i.e. Pavilion Damansara Heights (RM570.4mil) and Maju KL (RM280mil). The two projects allow the fleet of machinery to operate on the same spot over an extended period of time, given the scale of the projects. However, it is mindful of potentially higher input costs (particularly steel).

• 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, we believe the current share price has very much reflected Econpile’s fundamentals.

Source: AmInvest Research - 23 Nov 2017