We continue to like Econpile Holdings Bhd (“Econpile”) and view prevailing low share price a compelling value proposition, as it continues to win significant jobs (FY19 YTD circa RM620m). BUY with a target price of RM0.68 based on 13x PER FY20 as per its closest related peers. 

Econpile remains the market leader in the piling and foundation and due to its extensive fleet of machinery and expertise in undertaking technically challenging and larger scale jobs, it can command higher margin than its peers. Despite an earnings blip in 2QFY19 we expect overall FY19 to be a reasonable year for Econpile. It is also the only few that has rail related civil engineering expertise, securing Gemas-JB Electrified Double Track rail project recently. 

Econpile’s job replenishment remains robust as evidenced by RM620.2m new contract wins in FY19 YTD boosting total orderbook to RM1bn. This has exceeded their FY18 total contract win providing earnings visibility until 2021. Recent positive news on the likelihood of the revival of ECRL with construction sector coming out of the doldrums should be positive for Econpile. The Government is likely to revisit key major infrastructure and construction projects Klang Valley Double Track (RM3bn), ECRL (RM35-40bn), Penang Transport Master Plan (RM17bn), HSR (RM25bn), Klang Valley MRT3 (RM20bn) and key beneficiary such as Econpile is poised to capture a slice of the jobs given their proven capabilities and track record. 

Econpile has maintained their dividend policy of distributing minimum 20% of net profit and this would translate to respectable 3.1% dividend yield. Gearing ratio is at minimal 0.03x. Green shoots of construction revival is in the horizon albeit on a modest scale and thinner margins, Econpile still come out tops amongst its peers at close to10% in net margins. We expect earnings recovery in FY2020 and FY2021 with EPS growth by 54.5% and 12.1% respectively after a tough FY19. 

Source: Rakuten Research - 1 Apr 2019