This article first appeared in The Edge Financial Daily, on April 4, 2016.
(April 1, RM1.19)
Maintain buy and revise up target price to RM1.70 from RM1.56: Econpile Holdings Bhd has secured a piling contract for a hotel development project in Penang worth RM51.6 million.
The contract was awarded by Eco Meridian Sdn Bhd to Econpile’s wholly-owned subsidiary, Econpile (M) Sdn Bhd.
The job entails contiguous bored pile, bored pile and basement works for the development of a 453-room four-star business hotel within the Setia Subterranean Penang International Convention and Exhibition Centre (SPICE) development.
Note that Econpile had previously completed the piling and basement works for the Setia SPICE’s convention centre. The development is a public-private partnership between S P Setia Bhd and the Penang Municipal Council to revamp the existing Penang Indoor Sports Arena.
The job will commence this month and is expected to be completed by June 2017 (duration: 15 months).
Hence, it will contribute to the group’s bottom line over financial year 2016 (FY16) to FY17.
With the latest win, Econpile’s outstanding order book currently stands at RM627 million (end-December: RM606 million).
This will keep the group busy until early 2018.
For FY16 year-to-date, Econpile has secured RM365 million worth of new jobs, which exceed our previous replenishment target of RM320 million.
As we believe more contract wins could flow through in the fourth quarter of FY16 (4QFY16), we have raised our target to RM400 million.
Following our increased FY16 order book, Econpile’s FY16 to FY17 earnings have been raised by 9% to 13%.
We maintain our replenishment target of RM400 million for FY17.
Near-term prospects include piling jobs for Klang Valley Mass Rapid Transit 2, while upcoming infrastructure and property projects will ensure continuous contract flows.
Since its listing in mid-2014, Econpile has continued to deliver both earnings and job wins.
Recall that for the latest 2QFY16 ended Dec 31, 2015, its net margins had continued to expand to 15%.
All in, we like the group for its strong track record as a leading piling specialist.
Resilient demand for piling works should ensure continuous job flows and sustainable margins on stable raw material prices.
Econpile is currently trading at 10 times price-earnings. — AmInvestment Bank, April 1