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

- We attended a briefing yesterday and came away upbeat about Econpile’s prospects. Our investment thesis premised on improving margins remains intact.

- Notably, its 1QFY15 net margin had expanded by 2.5ppts QoQ (to 8.9%) due to a better product mix.

- Gross margin improved to 16.8% during the quarter (vs. 14.8% in FY14) due to higher billings from propertyrelated jobs.

- Notably, property development jobs contributed to 89% of its total revenue (vs. 69% in FY14), while the rest are infrastructure-related jobs.

- This is positive as property jobs command higher margins (gross margin: 19%) vis-à-vis that of infrastructure (1.6%). The improved margins are also attributed to improved efficiency and lower raw material costs.

- We expect margins to improve further in the coming quarters as the group completes the KVMRT1 jobs (outstanding order book: RM20mil) by end-Jan. V6 package is scheduled for completion by year-end while V1 will be completed before Chinese New Year.

- As such, we expect continued margin expansion on the back of higher progress billings of property-related jobs, which form a majority of its outstanding order book of RM480mil as at end-Sept (end-June: RM450mil).

- For YTD FY15F, the group has secured ~RM200mil worth of new jobs (FY14: RM522.6mil). Note that progress billings from its new jobs have not really kicked in as they are at the initial stages. We have a conservative new order book of RM320mil for FY15F.

- With a tender book of RM2bil, management noted that demand for piling jobs in the market remains robust in the mid-term with a number of upcoming construction jobs in the Klang Valley.

- In anticipation of more jobs, Econpile is setting aside RM15mil capex for FY15F (RM9.1mil spent in 1Q) to purchase new machineries and tools.

- On another positive note, Econpile was recently added to SC’s shariah-compliant list.

- Maintain BUY. Econpile is a strong beneficiary of rising job flow, with a strong execution and concerted efforts to improve margins. 

Source: AmeSecurities