We remain positive on the prospects of Econpile Holdings Bhd (“Econpile”) even after share price has recovered from its all-time low of RM0.36 in end 2018. Reiterate BUY as we ascribed a target price of RM1.11 based on 19x PER FY20 on the revival of infrastructure related projects which will boost its earnings for the next two years.

The slew of infrastructure projects coming back on stream such as the East Coast Rail Link (RM44bn), Penang Transport Masterplan (RM27bn), Klang Valley MRT3 (RM20bn), Bandar Malaysia (RM140bn), Sarawak state development spending of RM11bn for infrastructure jobs will keep construction players busy. Econpile being the piling, foundation specialist and market leader is poised to benefit from these and is likely to see its orderbook piling up.

Econpile’s current orderbook of RM1bn is expected to provide earnings visibility until 2021 and managed to secure RM638m new contracts YTD amidst the challenging market conditions. Going forward with the restart of the government’s pump priming activities, we’re taking a more optimistic view on their contract replenishments with estimated additional new contracts of RM600m to be secured for FY20 and RM800m in FY21

Econpile is also looking beyond Malaysia namely Myanmar, Vietnam, Cambodia, Singapore and Indonesia for infrastructure and property segments due to excess capacity of their fleet of machineries which has declined to 60% and has since picked up to over 80% on the resumption of major projects in their orderbook.

Econpile remains the market leader in the piling and foundation segment with higher margin than its closest peers circa 10% and expect earnings recovery with EPS growth of 54% FY20 and 11% FY21 back to their record profit achieved in FY18.

Source: Rakuten Research - 22 Jul 2019