Results in line. Econpile’s 3Q15 revenue rose moderately at 9% q-o-q (30.3% y-o-y) to RM114.1m, which in turn increased its net profit by 17.5% q-o-q (128% y-o-y) to RM12.5m. The strong performance is mainly due to its strong order book replenishment, higher progressive billing in Q3 and the on-going margin expansion plan through improving operation efficiency and capacity. The 9M15 result was broadly in-line with our estimates at around 70% of our FY15 forecast and we expect 4Q15 results to be better attributable to its machinery upgrading work and full quarter contribution from the contracts secured since IPO. Worth to note, all contracts secured post-IPO are from property development segment which provides higher margin while the infrastructure contracts – MRT 1 jobs has completed in 3Q15.

Improving margin. Econpile is currently on track in expanding its net margin and we expect Econpile’s net margin to continue improving to at least 12% over the next 2 years. In 3Q15, Econpile’s net margin has improved by 4.7 percentage point y-o-y to 11%. However, the management reckons there are still rooms for improvement and should be able to materialise over the next few quarters. This is mainly through upgrading of machinery to improve efficiency and expanding its fleet of machinery to increase capacity.

Consistent order book replenishment. As at May’15, Econpile’s order book totalling at above RM550m that will typically keep the company busy for the next 18 months. Its latest contract bagged worth RM26.7m was secured on 20 May, for a commercial cum office development piling and substructure work in Seksyen 13, PJ. With this, Econpile’s FY15 jobs replenishment stands at RM392.4m, about 91% of our FY15 contracts order assumption of RM430m.

Higher than expected dividend. Econpile has declared a second interim dividend of 1.5sen per share. This brings its FY15 dividend to 2.5sen per share (1.0sen in 1Q15), equivalent to RM13.4m or about 30% of our FY15 net profit forecast. This is higher than its 20% dividend policy and above our expected dividend of 1.75sen per share. Recommendation. We maintain Econpile with an Outperform rating and fair value of RM1.33 based on FY16 EPS of 11.9sen pegged to the construction industry PE of 13x. However, we have raise dividend payout in FY16/17 to 30%.

Source: Mercury Securities - 26 May 2015