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This article first appeared in The Edge Financial Daily on November 18, 2019

Econpile Holdings Bhd
(Nov 15, 76.5 sen)
Maintain underweight with an unchanged fair value (FV) of 34 sen:
Econpile Holdings Bhd has secured a RM26.1 million contract for piling, basement and substructure works for the WCity OUG high-rise residential development in Kuala Lumpur. The latest contract has boosted its year-to-date (YTD) financial year ended June 30, 2019 (FY19) contracts secured to RM104.6 million and its outstanding order book to RM900 million. We are keeping our forecasts which assume Econpile will secure RM500 million worth of new jobs annually in financial year 2020–2022 forecast (FY20–22F).

 

Econpile has set itself a target for new job wins of RM600 million in FY20F (versus RM643.7 million achieved in FY19). During a recent analyst briefing, it guided for about RM100–200 million new contracts to come from piling jobs for property projects. For infrastructure piling jobs, it said that it depends on the timing of the roll-out of new public projects from the government of which is still lacking clarity at present. For the East Coast Rail Link (ECRL) project, Econpile said that it had “attended briefing and visited the sites” and has been pre-qualified to participate in the project.

We maintain our view that valuations of construction stocks, Econpile included, have run ahead of their fundamentals in the heat of the euphoria sparked by the recent revival of the ECRL and Bandar Malaysia projects.

We believe the fact remains that given the still elevated national debt, the government has no choice but to remain steadfastly committed to fiscal prudence which means the revival of the ECRL project could be a “zero-sum game” as it impedes on the government’s ability to implement other public infrastructure projects.

We are also mindful of the acute oversupply situation in the high-rise residential, retail mall and office segments, which translates into weak prospects in property-related job wins for piling contractors like Econpile.

Its valuations are unattractive at 16–20 times forward earnings on muted earnings growth prospects.

We maintain our “underweight” call, forecasts and FV of 34 sen based on eight times fully diluted calendar year 2020 forecast earnings per share of 4.25 sen, in line with our benchmark forward target price-to-earnings of eight times for small-cap construction stocks. — AmInvestment Bank, Nov 15

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