Investment Highlights

• We maintain SELL on Econpile Holdings with a lower fair value (FV) of RM0.14/share (from an earlier RM0.21/share) based on 9x FY23F PE, in line with our benchmark for smallcap construction stocks. There are no adjustments for ESG based on our 3-star rating.

• Econpile’s core net loss of RM27mil in 9MFY22 fell short of our earlier FY22F net profit of RM3mil and consensus estimates of RM2mil.

• As such, we are now forecasting that the group would record a FY22F net loss of RM13mil. For FY23F, we lower Econpile’s net profit by 36% to RM22.4mil. We believe that Econpile would be affected by a weak order book replenishment and depressed margins from elevated building material costs in FY22F.

• Econpile recorded a loss of RM27mil in 9MFY22 due to high material prices and labour shortages. On a QoQ basis, Econpile posted lower revenue (-5%) in 3QFY22 due to slower operations during Chinese New Year. However, this was partially offset by its Cambodian operations, which operated normally.

• So far in FY22F, Econpile has won 4 major projects and smaller jobs worth RM155mil, bringing total outstanding order book to RM550mil (1.3x of FY21 revenue). The current tender book stands at RM500mil. With only 1 quarter left, we reduce our replenishment assumption for FY22F to RM200mil from RM250mil whilst maintaining RM250mil for FY23–24F.

• We believe that developers are cautious on launching new projects due to high construction costs. This could lead to weaker job wins for piling contractors like Econpile.

• In the near term, potential replenishment includes smallish piling/substructure jobs (<RM50mil) from private property projects locally.

• During our engagement with the company, Econpile said that the rising cost of building materials has already been accounted for in new tenders.

• Econpile is currently trading at an unattractive 15x FY23F PE, above our benchmark of 9x for small-cap construction stocks. Catalysts include job wins in Cambodia or Malaysia.

Source: AmInvest Research - 26 May 2022