This article first appeared in The Edge Financial Daily on March 22, 2019
Econpile Holdings Bhd
(March 21, 47 sen)
Maintain underweight with fair value (FV) of 22 sen: We maintain our “underweight” call, forecasts and FV of 22 sen based on Econpile’s end-FY18 net tangible assets, adjusted for a worst-case impairment of RM80.1 million outstanding payment from client ASM Development (KL) Sdn Bhd (the developer of Maju KL) under dispute. We abandon the earnings-based valuation method for Econpile given its elevated earnings risk following a slew of negative earnings adjustments recently including sizeable cost overrun, significant receivable impairment and a major contract dispute.
Econpile has secured a RM44.7 million sub-contract from MMC-Gamuda JV for reinforced concrete box tunnel work for Hospital KL Station, MRT2.
The latest job has boosted its year to date (YTD) (FY June) job wins to RM620.2 million and outstanding order book to RM1 billion.
We are keeping our forecasts as Econpile’s FY19F YTD job wins are still broadly consistent with our assumption of RM600mil. For FY20-21F(forecast), we assume job wins of the only RM500mil annually on the back of the slowdown in the local construction market.
We maintain our view that the current slowdown in the local construction industry sector is no ordinary sector cyclical downturn, but a secular change to the sector’s fundamentals, triggered by: i) a major cutback in public infrastructure spending over the medium term as the government adheres to fiscal prudence; and ii) the permanent reduction in overall margins for players in the absence of high-margin directly-negotiated government jobs, as the government observes higher standards of transparency and accountability in public procurement. — AmInvestment Bank, March 21