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This article first appeared in The Edge Financial Daily, on December 1, 2015.

 

Econpile Holdings Bhd 
(Nov 30, RM1.02)

Maintain buy with an unchanged fair value of RM1.50: We maintain “buy” on Econpile Holdings Bhd with an unchanged fair value of RM1.50 per share — pegged at 14 times financial year ending June 30, 2016 (FY16F) (forecast) price-earnings ratio. 

Econpile reported first quarter ended Sept 30, 2015 (1QFY16) earnings of RM14.5 million — up 52% from RM9.5 million a year earlier. This was on the back of a 5% fall in revenue. 

Earnings were in line, making up 25% of our full-year forecast and 27% of the consensus’. Sequentially, earnings grew 4% on the back of a 3% dip in revenue. The lower revenue was due to certain projects being in their initial stages (which resulted in lower billings). These should pick up as the projects progress. 

As expected, Econpile’s margin continued its growth path due to improved efficiency, lower material costs and higher utilisation of machinery. Net margin expanded to 14.3% in 1QFY16 from 9% a year earlier (and versus 4QFY15’s 13.5%). 

Econpile declared a dividend of one sen (1QFY15: one sen). It is expected to pay another dividend in 3QFY16 (our total FY16F dividend per share assumption is 2.5 sen, which represents a 2.4% yield). 

Econpile has a policy to pay out 20% of net profit as dividends. The ex and entitlement dates for the dividend are Dec 11 and Dec 15. 

Moving forward, earnings will continue to be supported by its outstanding order book of RM630 million (end-June: RM512 million). 

Just last week, Econpile secured a RM95.5 million piling job for a mixed development in Mont Kiara. Year to date FY16F, it has already secured RM216 million — making up 68% of our replenishment expectation of RM320 million (FY15: RM490 million). We expect more wins given its tender book of about RM1 billion on the back of upcoming property and infrastructure jobs in the Klang Valley. Upcoming big-scale projects include Menara KL118, Bukit Bintang City Centre, Tun Razak Exchange and Bandar Malaysia. 

Econpile is also seen as a possible beneficiary of piling jobs for the upcoming Klang Valley Mass Rapid Transit Line 2 (MRT2) and Light Rail Transit Line 3, given its experience in MRT1 (it secured piling jobs worth about RM200 million). 

We maintain “buy”. All in, Econpile continues to deliver both earnings and job wins. We like Econpile for its strong track record as a leading piling specialist, continued improvement in margins and a sustainable contract flow on healthy demand. — AmResearch, Nov 30

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