• Still SELL, new MYR0.29 TP from MYR0.12, 19% downside. 1HFY24 (Jun) core net loss of MYR14.2m missed our and Street’s full-year earnings estimates of MYR12m and MYR8m. The deviation was mainly attributable to higher-than-expected cost overruns. In light of the still-challenging piling situation and Econpile’s weak earnings outlook, we now adopt a P/BV valuation methodology vs P/E previously. In the absence of sizeable job wins, we deem valuations as lofty, with ECON trading at 1.3x FY25F P/BV, >+2SD from the Bursa Malaysia Construction Index’s – this warrants our call.

• Results review. ECON booked a 30.3% YoY revenue improvement for 1HFY24 on a gradual recovery in construction activities, primarily from private property development projects. Nonetheless, a core net loss during the same period of MYR14.2m has widened vs a MYR4.5m core loss a year ago, with a gross loss of MYR0.4m (1HFY23: +MYR6.3m). This was largely attributed to cost overruns in certain projects.

• ECON’s outstanding orderbook stood at MYR303.9m as at end 2QFY24 (0.8x cover ratio) vs MYR434m a year ago. It has MYR244m worth of new jobs secured for FY24 so far (job wins target: MYR300m). With that, its orderbook level as of each quarter’s end has remained below MYR600m for eight straight quarters vs the high of MYR900m seen during end 2QFY21.

• Outlook. ECON’s tenderbook of c.MYR1bn comprises two projects in Cambodia (worth USD10m each), with the balance made up by private property, infrastructure, data centre, and industrial buildings projects. Nonetheless, we remain cognisant of the current stiff competition with non- listed pilers, which may squeeze ECON’s profitability. Additionally, the slower-than-expected approval of infrastructure projects such as Mass Rapid Transit (MRT) 3 and Sungai Klang Link Elevated Highway (SKL) may further dampen its job replenishments trend.

• As earnings missed estimates, we slash FY24F-26F earnings by c.60-90% after factoring in more conservative margins assumptions. We expect earnings in the coming quarters to be underpinned by newly secured jobs, but these will not be sufficient to push earnings up to pre-COVID-19 levels (between MYR26m and MYR87m) should the pace of the new job wins remain within our MYR300m target for FY24.

• Valuation. Our MYR0.29 TP is pegged to 1.1 target P/BV with a 6% ESG discount (increased from 4%) due to the lack of emissions disclosures. We view the target P/BV of 1.1 (-0.5SD from its 5-year mean P/BV) as justified, reflecting ECON’s usual role as a subcontractor in big ticket projects such as MRT2 that totalled to MYR180m. Re-rating catalysts include faster-than- expected rollout for the SKL, MRT3, and Kuala Lumpur-Singapore High Speed Railway projects. Upside risks: Faster-than-expected rollout of mega infrastructure projects and volatile building material costs.

Source: RHB Research - 29 Feb 2024