Investment Highlights

• We cut our FY18-20F net profit forecasts by 2%, 8% and 13% respectively, reduce our FV by 10% to RM0.54 (from RM0.60) but maintain our HOLD call.

• Our FV is based on 9x revised FD CY19F EPS of 6.0 sen, in line with our benchmark forward P/E of 7-9x for small-cap construction stocks.

• Econpile has secured a RM122mil contract for “working bored piles” for Pavilion Damansara Heights (Parcel 2) in Kuala Lumpur. This is the first key contract Econpile has secured in FY19 (June), boosting its outstanding order book to RM1.2bil (Exhibit 1).

• We are reflecting actual job wins of RM488.3mil in FY18 (vs. our assumption of RM600mil) while cutting our FY19- 20F order book replenishment targets to RM500mil annually (from RM600mil previously) to factor in the weakened prospects of the construction sector, as the government puts under review various mega infrastructure projects on grounds of fiscal prudence. These projects could potentially be deferred, scaled down or even cancelled.

• Also, the introduction of a more transparent public procurement system to plug leakages will translate to lower margins for players.

• However, we take comfort in Econpile’s substantial order backlog that should keep it busy over the next two years.

Source: AmInvest Research - 10 Jul 2018