Research house maintains ‘underweight’ call on Econpile

KUALA LUMPUR: Aminvestment Research is maintaining its “underweight” call and forecasts for Econpile but is raising its fair value to 34 sen, based on eight times fully diluted 2020 earnings per share of 4.25 sen.

In its latest research note, it said this was in line with its benchmark forward target price to earnings of eight times for small-cap construction stocks (from 25 sen previously based on an asset-based valuation method).

Econpile has secured a Rm44mil contract for piling and substructure works for Tropicana Gardens’ mixed development in Kota Damansara, Selangor.

The latest contract has boosted its year-to-date (financial year June) contracts secured to Rm72.7mil and its outstanding order book to Rm850mil.

“We are keeping our forecasts which assume Econpile will secure Rm500mil worth of new jobs annually in financial year (FY) 2020–FY22.

“Econpile has set itself a target for new job wins of Rm600mil in FY20 (vs Rm643.7mil achieved in FY19),” it said.

Aminvestment Research said that during a recent analyst briefing, Econpile guided for Rm100mil to Rm200mil new contracts to come from piling jobs for property projects.

For infrastructure piling jobs, it said 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 it had “attended a 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 highrise 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 15 to 19 times forward earnings on muted earnings growth prospects, ” Aminvestment Research said.