• Maintain SELL and MYR0.16 TP, 29% downside. We still believe the current share price level has outpaced Econpile’s early stages of recovery in fundamentals. Valuation is lofty, with the stock trading at 19x FY24F (Jun) P/E, >+2SD from the KLCON Index’s 5-year mean, amid the lack of mega infrastructure projects in place and sluggish flow of sizeable jobs, especially relating to property development, thereby warranting us to keep our call.

• Operational updates. The latest orderbook for FY23F is MYR433.6m – cover ratio of 1.2x. New contracts secured in YTD-FY23F (as of end Feb 2023) amount to MYR183m which already exceeds the MYR155.6m jobs won in FY22. Job execution is expected to be better facilitated by the arrival c.150 foreign workers between Nov 2022 and Jan 2023. While this may ease labour shortage, we are cognisant of the time lag between training and deployment at sites. Although new contracts secured by ECON have priced in the higher material costs, the impact of higher costs may still be felt from jobs won previously (especially in CY20-21 prior to the Russia-Ukraine crisis such as the Naga 3 entertainment complex in Cambodia). Moreover, most of these secured jobs are private property development projects (c.60% of total revenue) which have no variation of price clauses.

• Outlook. Due to the possible delays in the rollout of the Mass Rapid Transit 3’s (MRT3) main civil work packages, we believe the wait for ECON to secure any infrastructure-related jobs could continue given its intended participation as a subcontractor. Assuming the same timeline for MRT2 (Figure 1), ECON may only know the outcome of bids c.7 months after the award for the main civil work packages in 2H23. The risk of slower-than- expected property launches by developers could also dampen ECON’s job replenishment. As such, we advocate investors to cash-in on the rich valuation with no new large infrastructure projects making a debut that soon. Its earnings base may not revert to pre-pandemic levels of MYR40- 90m in the near future given the persistent elevated building material prices.

• We slash our FY23F earnings by >30% to take into account the burgeoning costs coming from contracts secured in CY20-21 but maintain our FY24F-25F earnings at this juncture, incorporating better cost management. As such, our TP remains at MYR0.16 (after ascribing a 4% ESG discount to our intrinsic value, based on our proprietary methodology) pegged to a 14x FY24F P/E – to reflect ECON’s higher chance to clinch MRT3 jobs compared to other earthworks and piling contractors. Advancecon (ADVC MK, NEUTRAL, TP: MYR0.24) has never been involved in MRT projects, while Pintaras Jaya (PINT MK, NEUTRAL, TP: MYR1.91) was only involved in a MYR20m bored piling works job in Apr 2013 vs ECON’s MYR180.7m total job value for three work packages under MRT2 between CY16 and CY19.

• A rerating catalyst is a potentially higher portion of elevated sections for MRT3 subject to cost review that may entail more piling works opportunities.

• Upside risk: Faster-than-expected rollout of mega infrastructure projects.

Source: RHB Research - 13 Apr 2023