in FY21 as there is a scarcity of local piling companies with a robust track record while fresh catalysts in the remainder of 2020 may boost potential earnings visibility.The research house, which has a "buy" call on Econpile, said it will be a likely beneficiary of potential catalysts in the sector while valuations for the stock remain attractive at just 15x 2021 forecast earnings.
RHB has a target price of 74 sen on the counter, which represents 17x 2021F price-earnings.
"We believe our target P/E of 17x is justified, in consideration of its status as the largest piling player in Malaysia (by market share), coupled with the scarcity of pure-play piling names in the market.
"Expectation of improved news flow in the sector is a near-term catalyst," it said.
However, the successful completion of a proposed private placement could dilute the target price by about 9% to 67 sen.
The fundraising expercise is expected to be completed in 1H21, whereupon the enlarged share base of the group is expected to increase 12% to 1.5 billion shares.
RHB added that there is potential dilution from 268 million oustanding warrants although warrant conversion is unlikely in the near term given that they are still out of the money.
Econpile is expected to save up to RM1mil per annum in interest upon partial repayment of the borrowings, which will reduce the gearing ratio to 11% from 19% or to net gearing of about 6% after deducting the latest reported cash balance of RM25mil.
"In our view, a deleveraged balance sheet post funding exercise will provide the group more headroom to undertake sizeable projects in the future," said RHB.