• Maintain BUY, with new MYR0.71 TP from MYR0.51, 47% upside. Post conference call on 21 Mar, we are optimistic on Econpile Holdings’ outlook to secure more projects in the next two years including mega projects – Sungai Klang Link elevated highway (SKL) and Mass Rapid Transit (MRT) 3 – which may lead to a turnaround in FY25F (Jun). Our new TP is based on a higher 2.8x FY25F P/BV (+1SD from its 10 year mean) to reflect improved momentum in new job wins and more favourable market sentiment in the construction space.

• 2QFY24F in review. Management attributed the sluggish 2QFY24F performance (MYR10m core losses) to the Johor Bahru-Singapore Rapid Transit System Link project (completed in 2QFY24) which achieved a lower- than-expected actual margin (only single digit vs budgeted double digit margin). Aside from that, the unforeseen soil erosion in some smaller projects caused delays and cost overruns. With the majority of lower-margin projects nearing completion, we are confident on the group returning to black in FY25F.

• Operational update. Outstanding orderbook of >MYR400m will keep the group busy for the next year. YTD new wins is at MYR392m, including a road upgrade at Cameron Highland (MYR66m), SOHO projects (MYR101m) and Eden Residence (MYR83m). ECON holds a tenderbook of MYR1bn, with c.70% allocated to the private property sector while the remainder is for infrastructure and industrial jobs. This encompasses affordable housing projects in Johor, commercial development projects, data centre jobs, bridge project in Pahang, an E&E-related project in Kedah, and two Cambodia projects (worth c.USD10m each). Moving forward, ECON plans to maintain prudence in its tendering activities by considering higher margins to offset the risks associated with the escalation of material prices.

• Outlook. With the potential upturn in the construction sector, we anticipate ECON to secure additional projects, leveraging its prominent position in railway projects. We understand from management that the Penang Light Rail Transit may potentially see around MYR200-300m worth of piling works. Meanwhile, regarding the SKL project, management is targeting to secure a Letter of Intent (LOI) by mid -CY24, with the actual contract award to ensue thereafter. Piling and substructure works are expected to make up 10-15% of the total construction costs of c.MYR10bn for the 53km project.

• Forecasts and valuation. We lift FY25F-26F earnings by 11-18% after factoring in higher job replenishment rate of MYR800m and MYR600m (both from MYR450m). As such, we arrive at a MYR0.71 TP, which is pegged to a 2.8x (from 2x) P/BV with a 6% ESG discount. We view the target P/BV of 2.8x (+1SD from its 10-year mean P/BV) as justified – reflecting ECON’s usual role as a subcontractor in big ticket projects, ie MRT2 (MYR180m) and LRT3 (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 - 25 Mar 2024