Investment Highlights

• We maintain our forecasts, FV of RM0.86 and HOLD call, following an analysts briefing yesterday. 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 reiterated its guidance for new job wins normalising to RM600mil 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 RM1.3bil (Exhibit 2).

• Econpile is eyeing piling jobs from, among others, Pavilion Damansara Heights (Phase 2) (of which the winning bid is likely to be announced in 2-3 months' time, and Econpile has indicated previously that it is worth about RM200mil), East Coast Rail Link, MRT3 and KLSingapore high-speed rail.

• Econpile acknowledged that its blended margins are on a declining trend due to: (1) the higher steel bar prices (of RM2,600-2,650/tonne vs. RM2,100-2,200/tonne 18 months ago (we estimate that steel makes up about 30% of total construction cost); (2) higher depreciation due to more extensive capex in recent years; and (3) the shift in its job mix towards the low-margin infrastructure pilling jobs (vs. the high-margin property piling jobs), from about 21% of total currently, to close to 30%.

• Econpile mentioned the strategy of growing the top line and boosting efficiency (via good management of human resources and optimal deployment of machinery – state of the art machines for high-value jobs and fullydepreciated/old machines for smaller and low-value jobs) to counter the margin pressure.

• 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 - 28 Feb 2018