- We maintain BUY on Econpile Holdings Bhd with an unchanged fair value of RM1.40/share, pegged to 15x FY15F PE.

- Econpile recorded a strong set of 3Q results with a 9% sequential topline growth as well as 0.8ppt margin expansion to 11%. 9M core earnings rose 17% YoY.

- The stronger performance was on the back of higher progress billings of property-related jobs (which yield better margins) amid a strong order book of RM414mil secured FY15F YTD.

- Its 9M core earnings of RM32.9mil are largely in line – making up 66% and 71% of our and consensus full-year estimates, respectively. We maintain our numbers as we expect a stronger 4Q.

- Econpile also declared a second interim dividend of 2.5 sen (yield: 2%). With 1.0sen declared in 1Q, the total payout (3.5sen) have exceeded our previous expectations (FY15F DPS of 1.8sen). These represent a 38% payout ratio of our forecasted earnings (vs. its minimum 20% payout policy).

- Sequentially, topline grew 9% to RM114mil in 3Q due to higher recognition of jobs. Recall that 2Q is traditionally a slower quarter due to the rainy season.

- More importantly, Econpile’s net margin had continued to expand since its listing last June. Net margin for the quarter expanded to 11% in 3Q from 2Q’s 10.2% (1Q: 9%, 4QFY14: 6.5%) (see Exhibit 2).

- The improved margins can be attributed to higher recognition of property-related jobs (gross margin of ~19%) while its lower margin KVMRT2 jobs had come to the tail-end during the quarter (gross margin of ~4%).

- Moving forward, we expect margins to improve further as it will fully reflect margins of its property jobs. Notably, all of its new order book secured FY15F YTD are for high-rise properties.

- Thus, our investment thesis of margin expansion remains intact (9M’s 10% vs. our FY15F’s 10%). Future earnings will continue to be supported by its strong outstanding order book of RM517mil (as at end-March).

- Prospects remain bright with a tender book of ~RM1bil. Econpile is also in strong position to bid for piling jobs for the upcoming KVMRT2 line, given that it had secured a large portion of the works for the first line (V1 and V6).

- We have increased our FY15F-17F DPS to reflect the latest payments. The ex- and entitlement dates for the interim dividend is 4 & 8 June, respectively. Maintain BUY.

Source: AmeSecurities Research - 20 May 2015