• Keep BUY, new MYR0.60 TP from MYR0.69, 62% upside. FY24 (Jun) core net loss of MY22.7m missed our and Street’s full-year net loss estimates of MYR18m and MYR16m. The deviation was attributed to higher-than- expected operating costs that compressed margins on legacy projects. Nonetheless, we remain positive on Econpile’s track record in infrastructure jobs vs other oiling contractors – this is in addition to its undemanding valuation, as the stock’s 1.4x FY25F P/BV is -0.5SD from its 10-year mean.

• Results review. ECON posted FY24 revenue growth of 11.1% YoY thanks to higher progress billings from private property development projects. Full- year GPMs improved by 2ppts due to higher contributions from better- margin projects, with legacy projects mostly at their tail-ends. Sequentially, the core loss widened to MYR5.7m in 4QFY24 (3QFY24: -MYR2.8m) on higher administrative expenses due to a provision made for receivables related to a client in receivership.

• ECON’s outstanding orderbook stood at MYR409m as at end FY24, while new job wins stood at MYR392m – this includes road upgrades at Cameron Highlands (MYR66m), a small office home office project (MYR101m), and Eden Residence (MYR83m). This indicates steadier job flow trends vis-à-vis the past two years, which saw job wins at <MYR300m (Figure 3). We view ECON to be the biggest public-listed piling contractor beneficiary – vs peers like Pintaras Jaya (PINT MK, BUY, TP: MYR1.85) and Aneka Jaringan (ANEKA MK, NR) – of anticipated infrastructure roll-outs in light of its solid track record in railway- and highway-related jobs (Figure 2).

• Forecasts. As ECON’s bottomline missed estimates, we slash FY25F-26F earnings by 13.5% and 13.8% after factoring in more conservative margins assumptions. We also introduce FY27F’s earnings of MYR18m with a target job replenishment of MYR500m. While our FY25F-27F earnings reflect a growth vs the core losses incurred during FY22-24, our projections have yet to match levels seen in FY18, when core earnings were at MYR87m, which warrants us to continue adopting a P/BV valuation method.

• Post earnings change, we derive a new MYR0.60 TP by pegging a lower target P/BV of 2.5x from 2.8x to FY25F BVPS. This is to reflect conservatism on the timeline of project roll-outs, as substructure and piling packages (at subcontractor level) may only be awarded after the main contractor is appointed. Our TP also bakes in a 6% ESG discount, given its 2.7 ESG score.

• We view the target 2.5x P/BV (+0.7SD from its 10-year mean) as justified, reflecting ECON’s role as a subcontractor of big-ticket projects such as Mass Rapid Transit 2 (MYR180m) and Light Rail Transit 3 (MYR208.7m). A major catalyst in our view: Potentially securing MYR300-500m in substructure/piling works for the Sungai Klang Link project (total project cost: MYR8-10bn; roll-out by end 2024). Downside risks: Slower-than- expected roll-out of mega infrastructure projects and volatile material prices.

Source: RHB Research - 2 Sep 2024