Econplie Holdings Bhd 
(Aug 27, RM0.82)
Maintain buy with an unchanged fair value of RM1.50: We maintain “buy” on Econpile Holdings with an unchanged fair value of RM1.50 per share — pegged to 14 times financial year ending June 30, 2016 (FY16F) (forecast) price-earnings ratio. 

Econpile ended FY15 with core earnings of RM47 million, up 35% from RM35 million a year earlier. Earnings are in line with both our and market expectations. The strong finish can be attributed to a lower tax rate and better margins as turnover only grew 3%.  Sequentially, revenue fell 9% due to higher rainfall at job sites as well as the fasting month of Ramadan. Nevertheless, Econpile’s earnings grew 11% to RM14 million. 

Notably, margins continued its growth path (fourth quarter’s [4Q] 14% versus 11% in 3Q) due to improved efficiency and higher recognition of property-related jobs. Recall that majority of its new jobs secured in FY15 (RM289 million) are property-related ones. All in, Econpile’s core net margin expanded 2.6 percentage points to 10.9% (versus 8.3% in FY14). This exceeded our expectations of 9.7%. 

Moving forward, earnings will continue to be supported by its outstanding order book of about RM510 million (end-March: RM517 million). We have a conservative order book replenishment of RM320 million for FY16F. 

Prospects continue to be supported by its tender book of about RM1 billion. Despite the slowdown in property sales, we understand that demand for piling jobs remains resilient. Econpile is also a potential beneficiary of piling works for key infrastructure projects, such as the Klang Valley Mass Rapid Transit line 2 given its track record and experience. 

We see possibility of margins improving further in the coming quarters due to higher recognition of outstanding property-related jobs it secured in FY15. Top-line should also improve further on billings of outstanding jobs. For FY16F, we forecast earnings to grow 23% on net margin of 11% for FY16F. 

We introduce FY18F earnings at RM70 million. We continue to like Econpile for its strong execution, earnings delivery and leading position in the piling industry (estimated market share of 25%). At the current price, valuations are undemanding at seven times. — AmResearch, Aug 27

This article first appeared in digitaledge Daily, on August 28, 2015.