Investment Highlights

• Maintain HOLD on Econpile with a lower fair value of RM0.40/share (from RM0.42/share previously) based on unchanged 15x FY26 target P/E – its pre-Covid FY18-19 average. Our neutral 3-star ESG rating is unchanged.

• FY24 net loss of RM25.2mil was 51% higher than our and consensus forecast. It has been a challenging year for Econpile due to low utilisation rate (~50%) as the company’s jobs are mostly low yielding contracts signed during the pandemic, exacerbated by cost escalation for concrete.

• The latest outstanding orderbook is RM409mil, largely unchanged QoQ, which means that the much-awaited big job wins have yet to materialise.

• The utilisation rate for the company’s machineries and manpower is at ~50%. The nature of foundation providers for job visibility is short as work activities can almost immediately commence when a new job materialises.

• We cut FY25/FY26 earnings by 32%/3% due to higher-than- expected cost items. We also introduce FY27F earnings with an increase of 2%.

• The outlook statement is positively toned, citing an active construction environment, and this should translate to more demand for foundation works.

• Overall, we believe that Econpile should turnaround in FY25F as new jobs that are being secured offer higher margins and incorporate cost increases that the construction sector has incurred. Management is waiting for big government projects such as the MRT3, West Coast highways and other major projects to boost its orderbook.

• The net debt stood at RM66mil, which translates to a net gearing of 0.18x. This is a slight improvement from 0.24x from the previous quarter as payments for completed jobs have raised its cash levels.

• Econpile generated a positive free cash flow of RM12.7mil in FY24, which is a substantial improvement from an outflow of RM5mil last year.

• Econpile is trading at 14x FY26F P/E, which is close to its pre-pandemic mean in FY18-FY19.

Source: AmInvest Research - 30 Aug 2024