• Maintain NEUTRAL and MYR0.16 TP, 0% upside with c.1% FY23F (Jun) yield. Econpile’s 1QFY23 core net loss of MYR4.8m missed our and Street full-year projections, as its GPM narrowed due to the increase in material prices and finance costs. While material prices are showing signs of easing, we believe these rates will still be well above pre-pandemic levels. This will continue to pressure margins, and make it hard for the company to see a return to pre-pandemic net profit levels of MYR31-87m.

• Results review. 1QFY23 revenue dropped 5% YoY to MYR81.9m (1QFY22: MYR86m), partly due to ongoing labour shortages – overshadowing the progress billings from the Naga 3 project in Cambodia, which reached c.60% completion (targeted completion: 2024). We understand that 89.5% of its revenue came from property projects such as Pavilion Square and Pavilion Damansara Heights, while 10.5% of turnover was contributed by an infrastructure project, ie the Johor Bahru-Singapore Rapid Transit System (RTS) Link. Note that its core net loss in 1QFY23 of MYR4.8m was lower than 1QFY22’s core net loss of MYR5.8m, thanks to stronger other income (>100% YoY). Nevertheless, the cost of sales remains elevated, as concrete prices outweighed the reduction in steel prices.

• Outlook. So far in FY23, Econpile has clinched MYR108m (which is already near its FY22 new job wins of MYR155.4m) worth of new jobs related to the RTS Link, the 41-storey services suite at Jalan Imbi, and a private hospital in Kota Bharu, Kelantan. Its total outstanding orderbook as at end-1QFY23 stood at MYR442.8m, translating into an orderbook/revenue cover ratio of c.1.2x. Looking ahead, Econpile will be receiving c.100 foreign workers in December – which will enable it to ramp up work progress for existing jobs. The latest price trends of building material costs have also been accounted for in its latest jobs and tenders. Nevertheless, we remain wary on its high dependence on property development projects, which may face downside risks in light of the higher interest rate environment.

• Earnings estimates. We slash FY23-25F earnings by 14.7%, 3.6% and 7.1% to impute the higher financing costs. We also roll forward our valuation base to FY24, with an unchanged target P/E of 14x (a premium to the KLCON index’s forward P/E of 12.6x), pegged to FY24F EPS. This premised on Econpile’s potential in winning Mass Rapid Transit 3 (MRT3) subcontracts, compared to its peers which lack exposure in previous MRT projects. Recall that it won a MYR180.7m worth of jobs for MRT2 between 2016 and 2019. Post rolling forward our valuation base, our TP remains unchanged at MYR0.16. Our TP also has a 4% ESG discount imputed on its intrinsic value, based on our proprietary ESG scoring methodology. Econpile is trading at 14x FY24F P/E, which is near its 5-year mean but +1SD from the KLCON index’s 5-year average.

• Upside/downside risks: Success/failure in securing new contracts, and less/more intense competition among piling contractors.

Source: RHB Research - 30 Nov 2022