Investment Highlights

• We maintain our forecasts, FV of RM0.86 and HOLD call. Our FV is based on 14x FD CY18F EPS of 6.15 sen, in line with our benchmark forward P/E of 13-15x for mid-cap construction stocks.

• Econpile’s 1HFY18 results came in within our expectations at 51% of our full-year forecast but missed market expectations at only 45% of full-year consensus estimates.

• 1HFY18 top line expanded 26% YoY but net profit only grew 16% as EBIT margin dropped by 1.5ppts, hurt largely by higher steel cost.

• 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 RM441.9mil. Its outstanding order book stands at RM1.4bil (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).

• 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 - 27 Feb 2018