This article first appeared in The Edge Financial Daily, on February 22, 2016.

KUALA LUMPUR: Econpile Holdings Bhd, the country’s largest piling contractor by market capitalisation, is counting on the infrastructure sector to hold its earnings up amid a slump in the property development sector.

Its executive director and group chief executive officer Raymond Pang Sar said the group is currently bidding for some RM1 billion worth of piling jobs mainly in the infrastructure sector and looks to secure 15% of it.

Already, the group has bagged contracts worth about RM200 million in the first half of the current financial year ended Dec 31, 2015 (1HFY16).

“We do not see a hiccup in our financial performance for 1HFY16 and expect healthy margin growth,” he told The Edge Financial Daily in an interview.

“From here, we still have another half year to go. Based on our current tender book, we think we can easily secure another RM150 million worth of projects, which would account for 15% of the current tenders,” Pang said.

“We will be actively involved in infrastructure works and are likely to secure some jobs, such as piling works for the East Klang Valley Expressway and the Mass Rapid Transit Line 2 (MRT2) projects,” he added.

Econpile is also bidding for piling jobs from other infrastructure projects such as the Sungai Besi-Ulu Kelang Expressway, the Damansara-Shah Alam Elevated Expressway and the Duta-Ulu Kelang Expressway.

Additional, Pang noted that the group is exploring more opportunities to work with its existing Chinese partners.

“They (Chinese consortiums) have strong cash and we have local expertise. Thus, there are a lot of opportunities [for collaborations],” he said, declining to reveal the names of its Chinese partners.

Of the RM429 million revenue Econpile recorded in the financial year ended June 30, 2015 (FY15), revenue from the property development sector totalled RM399.8 million or 93.2%, while the infrastructure sector contributed the balance RM29.2 million or 6.8%.

The group posted a 52.4% increase in first-quarter (1QFY16) net profit to RM14.5 million from RM9.51 million a year ago, despite a 4.9% fall in revenue to RM101.08 million from RM106.3 million. The earnings improvement was due to operational efficiency, higher utilisation of machinery and equipment,  and lower raw material prices.

It is due to release its 2QFY16 earnings results on Wednesday.

“We have not seen a major delay in the construction projects that we are bidding for, as some of them, such as the MRT2 project, have their funding in place,” Pang said, adding that as the group already has a track record in handling the piling and foundation works for MRT1; it stands a high chance of securing work packages for the MRT2 project.

Despite the softening property market, Pang is not too worried about revenue contributions from its property segment on the back of a strong order book of some RM600 million, which would provide it earnings visibility until 2017.

“Overall, the economy is depressed, but I am positive on the group’s performance in FY16 as our order book can sustain us into 2017. This (order book) can be our cushion,” he said.

Meanwhile, Pang is expecting the group’s profit margin to be maintained, helped by lower steel bar and steel material prices.

The group’s net margin expanded to 14.3% in 1QFY16 from 9% a year earlier.

“We do minimum outsourcing as our works are basically involved in machinery, labour and raw materials. If we can manage the costs of these three elements, there is no problem [of margin erosion],” said Pang.

“For 1HFY16, the basic material prices have declined, and this has given us additional advantage,” Pang said.

Pang said the group will see its capital expenditure normalising to RM20 million to RM25 million in FY16, from over RM30 million in FY15, which will be used mainly to fund machinery upgrades.

Econpile is also looking for mergers and acquisitions (M&A) to move up to the next level, and improve its market capitalisation.

“One of the challenges for us is how to improve our market cap. Thus, if an M&A opportunity arises where the company has the right people and right expertise, why not?” Pang said.

As at Sept 30, 2015, Econpile’s cash and cash equivalents stood at RM13.72 million.

AmResearch analyst Max Koh is positive on the piling sector and Econpile’s prospects, underpinned by a massive infrastructure building boom and a small number of players in the industry.

“The group’s margin should be sustained at [the] current level because of its specialisation,” Koh told The Edge Financial Daily.

He is maintaining a “buy” call on Econpile, with an unchanged target price of RM1.50.

Econpile’s share price has nearly doubled from its initial public offering of 54 sen per share. It closed two sen or 2% higher at RM1.02 last Friday, with a market cap of RM545.7 million.