Econpile Holdings Bhd
(Dec 1, 94.5 sen)
Maintain “buy” with a target price (TP) of RM1.28: We maintain “buy” on Econpile Holdings with an unchanged fair value of RM1.28 per share — pegged to a price-earnings ratio (PER) of 15 times financial year 2015 forecast (FY15F) earnings per share.

The group reported net earnings of RM9.6 million for the first quarter of FY15 (1QFY15) on the back of RM106 million in revenue. Sequentially, earnings grew by an impressive 50% on the back of a slimmer 6.5% top-line growth.

The improved earnings can be attributed to a 2.5 percentage points (ppts) net margin improvement to 8.9% (from 6.4% in 4QFY14) due to better product mix. The earnings were in line with our estimate (making up 21% of full-year FY15F) but surpassed consensus expectations.

The group declared a first interim dividend of one sen (yield: 1%). We expect the group to pay out at least another dividend during the remaining part of the year given its 20% payout policy (our FY15F estimate: 1.8 sen per share). Revenue increased by 6.5% quarter-on-quarter due mainly to higher recognition from jobs in hand. Recall that the group has secured RM200 million worth of new jobs in FY15F thus far (FY14: RM522.6 million). As at end-September 2014, it had an outstanding order book of RM480 million (end-June: RM450 million).

We expect more jobs to flow through given the demand for piling jobs in the market (tender book: about RM2 billion). We maintain our conservative new order book win of RM320 million for FY15F for now. The net margin expansion is in line with our assumed 2.6 ppts net margin improvement (to 10%) for FY15F.

We expect margins to further improve as the group completes the Klang Valley Mass Rapid Transit (KVMRT) jobs within the next two months. Notably, the V6 (construction and completion of viaduct guideway and other associated works from Plaza Phoenix station to Bandar Tun Hussein Onn station) package is on schedule for completion in December. Work for V1 (construction and completion of viaduct guideway and other associated works from Sungai Buloh station to Kota Damansara station) had also recommenced (after a two-month hiatus) with completion expected at end-January. We expect wider investor interest as Econpile was added to the Securities Commission Malaysia’s syariah-compliant list last week. — AmResearch, Dec 1

This article first appeared in The Edge Financial Daily, on December 2, 2014.