Econpile Holdings Bhd
(March 29, RM2.21)
Maintain hold call with a fair value (FV) of RM2.13:  We maintain our forecasts for Econpile Holdings Bhd with a “hold” call and FV of RM2.13, following the award of a RM92.5 million job for the construction of the diaphragm wall at Kampung Baru North Station of the mass rapid transit 2 (MRT2).

Our FV is based on 13 times the financial year 2018 forecast (FY18F) earnings per share of 16.4 sen, at a slight premium to our one-year forward target price-earnings ratio (PER) of 10 to 12 times for small-cap construction stocks to reflect a relatively less competitive piling segment vis-à-vis general contracting.

The latest contract has boosted Econpile’s year-to-date job wins to RM1.14 billion for its financial year and its order backlog to RM1.5 billion.

We are keeping our forecasts which assume Econpile would secure RM1.2 billion new jobs in FY17, before normalising to RM600 million annually in FY18F and FY19F. Recall that Econpile secured RM627 million new jobs in FY16.

Econpile is a good proxy for the booming piling and foundation segment underpinned by current mega infrastructure projects such as the MRT2, Pan Borneo Highway, Sungai Besi-Ulu Kelang Elevated Expressway and Damansara-Shah Alam Elevated Expressway, as well as those that are getting off the ground over the short-to-medium term such as the light rail transit 3, East Coast Rail Line and Kuala Lumpur-Singapore High Speed Rail. Its earnings visibility is strongly backed by a sizeable order backlog which will keep it busy for the next 12 to 24 months. The entry barrier to the sector is high, given the high costs of equipment and machinery, as well as the limited availability of experienced operators.

However, we believe the current share price has very much reflected Econpile’s fundamentals. — AmInvestment Bank, March 29