Econpile Holdings Bhd (Oct 5, RM1.74)

Maintain buy with target price (TP) of RM1.93: We maintain our “buy” call and raise our fair value for Econpile Holdings Bhd (Econpile) by 5% to RM1.93 (from RM1.83) based on 13 times revised calendar year 2017 forecasted (CY17F) earnings per share (EPS) of 14.81 sen, a slight premium to our one-year forward target price-earnings ratio (PER) of 10 to 12 times for small-cap construction stocks.

The premium is to reflect a relatively less competitive piling segment vis-à-vis general contracting.

We have raised our net profit forecasts for forecasted financial years ending June 30, 2017 to 2019 (FY17F/18F/19F) by 3%, 8% and 4% respectively, following the award of a RM280 million piling, foundation and basement structure works contract  for a mixed development called Maju Kuala Lumpur in Sungai Besi, Kuala Lumpur.

This prompted us to upgrade our assumption for job wins from RM450 million to RM600 million annually in the FY17 to FY19F period, closer to the RM627 million it achieved in FY16, which was considered a bumper year.

The latest contract is the first job win for Econpile in FY17, boosting its outstanding order book to RM870 million.

During an analyst briefing in August, Econpile said that it was awaiting the outcome of its bid for the piling/foundation package for Pavilion Damansara Heights. Also, it indicated that it would bid for the piling/foundation package for Bukit Bintang City Centre (BBCC).

We estimate that these packages will exceed RM100 million each in terms of value — an ideal size for Econpile as competition is less intense for large piling/foundation jobs, with limited players in this segment.

Econpile believes that the job prospects in the infrastructure space are positive with piling/foundation works worth more than RM1 billion coming from the Sungai Besi-Ulu Kelang Elevated Expressway and Damansara-Shah Alam Elevated Expressway alone (and more, once the Duta-Ulu Kelang Expressway extension gets off the ground). It is also pursuing piling/foundation subcontracts of the mass rapid transit Line 2, as well as a station package potentially.

We like Econpile for its strong earnings visibility backed by the bright prospects of the piling/foundation segment coupled with its sizeable order backlog which will keep it busy for the next 12 to 18 months. — AmInvestment Bank, Oct 5

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This article first appeared in The Edge Financial Daily, on Oct 6, 2016. Subscribe to The Edge Financial Daily here.

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