Investment Highlights

• We maintain HOLD on Econpile Holdings (Econpile) with a higher fair value (FV) of RM0.39/share (from RM0.28/share previously) based on 1.4x FY24F book value – at parity to its 5-year mean. There are no FV adjustments for ESG based on our 3-star rating.

• We deem Econpile’s 1HFY24 results as below expectations with a deteriorating core net loss (CNL) of RM14.9mil (+3.3x YoY) compared to our earlier FY24F net profit of RM8.3mil and consensus’ RM7.8mil. We cut our FY24F-25F earnings by 10% to account for the losses.

• On QoQ basis, 2QFY24 CNL widened 3.3x to RM11.5mil from RM3.4mil in 1QFY24 as revenue decreased 8.5% to RM110mil. The bottomline was impacted by legacy projects as costs overruns greatly impacted margins. This was exacerbated by finance costs increasing by 14% QoQ as net gearing increased to 23% from 17% in end-FY23.

• Econpile’s order book decreased by 27% QoQ to RM304mil as at end-December 2023 due to lower new contracts secured against higher progress billings.

• Currently, there are 19 on-going projects at various stages of completion. Notable projects are (1) Three- Block SOHO @ KL (RM101mil); (2) The Park 3 @ Bukit Jalil (RM43mil); and (3) Pinnacle @ Subang Jaya SS16 (RM35mil).

• Future prospects include civil infrastructural projects such as MRT 3 and Penang LRT. Econpile is also well positioned in Cambodia to win jobs with the expectation of higher margins compared to local jobs.

• Challenges include (i) weaker-than-expected recovery of job flows; (ii) eroding profit margins as building material costs rise; and (iii) shelving of mega projects.

• The stock currently trades at a fair FY24F P/BV of 1.3x, near its 5-year mean of 1.4x.

Source: AmInvest Research - 29 Feb 2024