- We initiate coverage on Econpile Holdings Bhd with a BUY and a fair value of RM1.28/share – pegged to a PE of 15x FY15F EPS.

- Our investment thesis is premised on:- (i) Econpile’s stronghold on the market as one of the leading piling contractors in Malaysia; (ii) net margin improvements of 1-2ppts per annum as the management focuses on jobs with higher margins; (iii) a strong outstanding order book of ~RM600mil that will last the group the next 6-18 months; and (iv) new job wins of ~RM320mil per annum on the back of continuing jobs flow in Malaysia.

- Econpile’s earnings are set to grow by 16% to RM32.4mil in FY14F (ended June) before rising further by 41% to RM45.7mil in FY15F on the back of the strong outstanding order book. Earnings will further rise to RM53mil in FY16F.

- Its prospects are premised on its strategy to focus on building projects (instead of infrastructure jobs) which yield better margins. As it is, about 8% of its current order book is in infrastructure. Notably, the group is scheduled to complete its KVMRT1 jobs by October, which will free up 10-12 machineries for other building jobs.

- As such, we are projecting net margins to improve by 1-2ppts per annum (from 8% in FY14F to 11% in FY16F). This is on the back of a 3-year topline CAGR growth of 8% from RM410mil in FY14F to RM483mil in FY16F.

- With a tender book of RM2bil, we estimate new contract wins of RM320mil per annum for FY15F-FY16F.

- As at end-June, the group had an outstanding order book of RM490mil. Since its listing on 30 June, it has secured three building contracts worth RM136mil. We expect more jobs to flow through.

- Econpile has a strong balance sheet. It is in a net cash position as 25% of its IPO proceeds of RM48.6mil have been allocated to repay borrowings. It enjoys strong cash flow generation as capex will be minimal at RM10mil-RM15mil per annum.

- The company has adopted a dividend policy to distribute at least 20% of its profit after tax. Based on this, we are forecasting DPS of 1.3sen-2.0sen each of FY14F and FY15F, which translates to yields of 1%-2%.

- Econpile is a strong beneficiary of rising jobs flow, with strong execution and concerted efforts to improve margins. We peg Econpile at a premium, with a 15x PE given its stronghold in the piling industry. BUY.

Source: AmeSecurities