Econpile Holdings Bhd
(Jan 10, 72.5 sen)
Maintain underweight with a fair value (FV) of 24 sen: We maintain our “underweight” call, forecasts and FV of 24 sen based on eight times forecast calendar year 2020 (CY20F) earnings per share of 3.06 sen, in line with our benchmark forward target price-earnings ratio of eight times for small capitalised construction stocks.

 
Econpile Holdings Bhd has secured a RM45 million contract for piling and raft foundation works for Kuchai Sentral’s high-rise mixed development in Kuala Lumpur. This latest contract has boosted its year-to-date financial year (FY) ending June contracts secured to RM149.6 million and its outstanding order book to RM850 million. We are keeping our forecasts which assume Econpile will secure RM500 million worth of new jobs annually in FY20-22F on the back of the slowdown in the local construction market, versus the company’s internal target for new job wins of RM600 million in FY20F (FY19: RM643.7 million).

During a recent analyst briefing, the management guided for about RM100 million to RM200 million new contracts to come from piling jobs for property projects. For infrastructure piling jobs, Econpile said that it depends on the timing of the roll-out of new public projects by the government on which clarity is still lacking at present. For the East Coast Rail Link project (ECRL), Econpile said that it had “attended briefing and visited the sites” and has been pre-qualified to participate in the project

Given the still elevated national debt, we believe the government has very limited room for fiscal manoeuvre which means that it is unlikely to roll out new public infrastructure projects in a major way over the short term. We are also mindful of the acute oversupply situation in the high-rise residential, retail mall and office segments, which translates into weak prospects for property-related job wins for piling contractors like Econpile.

Econpile’s valuations are unattractive at 22-27 times forward earnings on muted earnings growth prospects. — AmInvestment Bank, Jan 10