Econpile Holdings Bhd
(Feb 13, 48 sen)
Maintain underweight with a fair value (FV) of 35 sen: This is based on eight times forward 2019F earnings per share of 4.4 sen, in line with our benchmark forward price-earnings ratio of eight times for small-cap construction stocks.

 
Econpile has been awarded a RM209.3 million contract for basement and substructure works of Pavilion Damansara Heights (Phase 2) in Kuala Lumpur. This is in addition to contiguous bored pile walls (RM18 million) and bored piling works (RM122 million) it secured from Phase 2 of the project, and RM570.4 million works it previusly bagged from Phase 1 of the project.

The latest job has boosted its year-to-date job wins to RM506.7 million and helped to sustain its outstanding order book at RM1.1 billion. We are keeping our forecasts that assume Econpile is securing RM500 million new jobs annually in financial year 2019 (FY19) to forecasted FY21F.

We hold the view that the current slowdown in the local construction industry is no ordinary sector cyclical downturn, but a secular change to the sector’s fundamentals. This is triggered by a major cutback in public infrastructure spending over the medium term as the government adheres to fiscal prudence, and the permanent reduction in overall margins for players in the absence of high-margin directly-negotiated government jobs, as the government observes higher standards of transparency and accountability in public procurement.

We are also mindful of the acute oversupply situation in the high-rise residential, retail mall and office segments, which translates to weak prospects in property-related job wins for piling contractors like Econpile.

Its valuations are unattractive at 11 times to 13 times forward earnings on muted earnings growth prospects. — AmInvestment Bank, Feb 13