• U/G to BUY from Sell, new MYR0.51 TP (from MYR0.29), 17% upside. We are optimistic on Econpile Holdings’ outlook as the group secured its sixth contract win for FY24F (Jun), demonstrating a positive momentum in job replenishment. Anticipating a turnaround in FY25F, backed by improved momentum in new job wins and a more favourable market sentiment in the construction space, our new TP is now based on a higher target of 2x FY25F P/BV .

• ECON bagged its sixth contract for FY24 worth MYR83m from BRDB Development. The scope of work includes substructure and ancillary works for a proposed development comprising eight blocks of villa residences (146 units) with two and four levels of basement carparks, two carpark blocks, common facilities, and a clubhouse. The project is at Taman Duta in the Klang Valley Area. Work is expected to be completed within 18 months from 1 Mar 2024.

• In a sweet spot. ECON's orderbook currently stands at c.MYR340m (0.9x cover ratio), with MYR392m YTD new wins in FY24. Leveraging on the anticipated upturn in the construction sector, we expect ECON to secure more projects, given its prominent position in Malaysia not just in property but also railway projects (Figure 1). One of its closest peers, Pintaras Jaya (PINT MK, BUY, TP: MYR2.06) is much more focused in Singapore (80-90% of orderbook in Singapore) – giving ample room for ECON to dominate the local piling scene.

• Outlook. ECON’s tenderbook stands at c.MYR1bn, including two projects in Cambodia (c.USD10m each), along with private property, infrastructure, and industrial building projects. Note that ECON secured MYR1.2bn worth of new jobs in FY17 (coincided with the CY17 construction upcycle). We anticipate improved margins from FY25F onwards, attributed to less volatile material prices and diminishing residual cost pressures from private property development projects secured between FY20-22 as they near completion.

• Forecasts. We revise our FY24 earnings forecast downward to a net loss of MYR12m from a MYR1m profit after incorporating more conservative margin assumptions, despite increasing the job replenishment target to MYR420m (from MYR300m). This adjustment accounts for the recognition of several low- margin projects that experienced cost overruns. However, we lift FY25-26F earnings by more than 100% after factoring in a better margin and higher job replenishment rate of MYR450m (from MYR300m and MYR350m).

• Valuation. Our MYR0.51 TP is pegged to 2x (from 1.1x) target P/BV with a 6% ESG discount. We view the target P/BV of 2x (10-year mean P/BV) as justified – reflecting ECON’s usual role as a subcontractor in big ticket projects, eg MRT2 (total of MYR180m) and Light Rail Transit 3 (MYR208.7m). Moreover, the target P/BV is lower than during the CY17 construction upcycle (3x P/BV). Downside risks: Slower-than-expected rollout of mega infrastructure projects and volatile material prices.

Source: RHB Research - 15 Mar 2024