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 has secured a RM25.9mil contract for site preparation, earthworks, piling and basement works from Putra Perdana Construction Sdn Bhd for a hospital redevelopment project in Kota Damansara, Selangor. The latest contract has boosted its YTD (FY June) contracts secured to RM467.8mil, and its outstanding order book to RM1.33bil (Exhibit 1).

• We are keeping our forecasts which assume Econpile will secure RM600mil worth of new jobs annually in FY18-20F. Recall, FY17 was a bumper year for Econpile with total job wins of RM1.19bil, compared with RM662mil in FY16.

• During a recent analyst briefing, 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 fully depreciated/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 - 13 Mar 2018