Econpile Holdings Bhd
(Oct 21, 70.5 sen)
Maintain underweight with a higher fair value (FV) of 34 sen: Econpile Holdings Bhd has secured a RM44 million contract for piling and substructure works for Tropicana Gardens’ mixed development in Kota Damansara, Selangor. The latest contract has boosted its year-to-date contracts secured to RM72.7 million and outstanding order book to RM850 million. We are maintaining our forecasts which assume Econpile will secure RM500 million worth of new jobs annually in financial years 2020 (FY20) to FY22 forecast (FY22F).

 
Econpile has set a target for new job wins of RM600 million in FY20F (versus RM643.7 million achieved in FY19). During a recent analyst briefing, the management guided for about RM100-200 million new contracts to come from piling jobs for property projects. For infrastructure piling jobs, it said that it would depend on the timing of the rollout of new public projects by the government, on which clarity is currently still lacking. For the East Coast Rail Link (ECRL) project, Econpile said that it had “attended briefing and visited the sites” and had been prequalified to participate in the project.

We maintain our view that valuations of construction stocks, including Econpile, have run ahead of their fundamentals in the heat of the euphoria sparked by the recent revival of the ECRL and Bandar Malaysia projects.

We believe given the still elevated national debt, the government has no choice but to remain steadfastly committed to fiscal prudence which means the revival of the ECRL project could be a “zero-sum game” as it impedes the government’s ability to implement other public infrastructure projects.

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

Econpile’s valuation is unattractive at 15-19 times forward earnings on muted earnings growth prospects.

We reiterate our “underweight” call and forecasts, but raise our FV to 34 sen based on eight times fully-diluted forecast calendar year 2020 earnings per share of 4.25 sen, in line with our benchmark forward target price-earnings of eight times for small-capitalisation construction stocks (from 25 sen previously based on an asset-based valuation method). — AmInvestment Bank, Oct 21