Investment Highlights

• We upgrade Econpile to a HOLD (from Sell) with a higher fai value (FV) of RM0.42/share (from RM0.39/share previously based on 15x FY26F PE – its pre-Covid FY18-FY19 average We maintain our neutral 3-star ESG rating.

• We gathered updates from the management and revised ou earnings forecasts. We now think FY24F will be loss making and raise our FY25F/FY26F earnings by 92%/66%.
• Key takeaways from the meeting are:
   
  • There are 19 on-going projects at various stages o completion.
     
  • The last of the “distressed” contracts with low margins signed during the pandemic will be over in Dec 2024.
     
  • New contracts have aptly imputed cost surge and are contributing positively to the company. The compan aims for low to mid-teen GP margins.
     
  • Management repeats the statement, “bullish that FY25 will be in the black” but will not comment on whether th consensus RM23mil is achievable, citing it is too early to say.
     
  • Newsflows on data centre (DC) projects are partiall positive. It is bidding for three DC projects, but these ar smaller scale ones at RM30-60mil range.
     
  • Current capacity utilisation for both machinery and manpower are at 50% and are ready to ramp-up at firs notice.
     
• Management is confident Econpile will be profitable in FY25F onwards as the operations are now efficient. There i sufficient manpower, machineries and the new contracts ar higher yielding. However, profit margins trail pre-pandemi levels because construction work is still short in supply, and everyone is bidding competitively.

• Management is hoping for the government to finally roll ou big infrastructure projects such as MRT3, Penang LRT and Johor LRT. Just about every major construction company in Malaysia is hoping for the same thing.

• The recent diesel subsidy rationalisation caused a 5% spik in cement prices last week, and management thinks there wi be further increases along the way. On a positive note, stee prices and spare parts costs are trending lower.

• Econpile is trading at 18.1x FY26 PE - 15% above its pre pandemic average of 15x.

Source: AmInvest Research - 4 Jul 2024