Investment Highlights

• We maintain our UNDERWEIGHT call, forecasts and FV of RM0.34 based on 8x fully diluted CY20F EPS of 4.25 sen, in line with our benchmark forward target PE of 8x for smallcap construction stocks.

• Econpile has secured a RM26.1mil contract for piling, basement and substructure works for the WCity OUG highrise residential development in Kuala Lumpur. The latest contract has boosted its YTD (FY June) contracts secured to RM104.6mil and its outstanding order book to RM900mil (Exhibit 1). We are keeping our forecasts which assume Econpile will secure RM500mil worth of new jobs annually in FY20–22F.

• Econpile has set itself a target for new job wins of RM600mil in FY20F (vs. RM643.7mil achieved in FY19). During a recent analyst briefing, it guided for about RM100–200mil new contracts to come from piling jobs for property projects. For infrastructure piling jobs, it said that it depends on the timing of the rollout of new public projects by the government of which clarity is still lacking 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 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 to weak prospects in property-related job wins for piling contractors like Econpile.

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

Source: AmInvest Research - 15 Nov 2019