AmWatch - Econpile Holdings : Continued margin expansion and topline growth in 3Q BUY, 20 May 2015

STOCK FOCUS OF THE DAY

Econpile Holdings : Continued margin expansion and topline growth in 3Q            BUY

We maintain BUY on Econpile Holdings Bhd with an unchanged fair value of RM1.40/share, pegged to 15x FY15F PE. Econpile recorded a strong set of 3Q results with a 9% sequential topline growth as well as 0.8ppt margin expansion to 11%. 9M core earnings rose 17% YoY. The stronger performance was on the back of higher progress billings of property-related jobs (which yield better margins) amid a strong order book of RM414mil secured FY15F YTD.

9M core earnings of RM32.9mil are largely in line – making up 66% and 71% of our and consensus full-year estimates, respectively. We maintain our numbers as we expect a stronger 4Q. Econpile also declared a second interim dividend of 2.5 sen (yield: 2%). With 1.0sen declared in 1Q, the total payout (3.5sen) have exceeded our previous expectations (FY15F DPS of 1.8sen). These represent a 38% payout ratio of our forecasted earnings (vs. its minimum 20% payout policy).

Econpile’s net margin had continued to expand since its listing last June. Net margin for the quarter expanded to 11% in 3Q from 2Q’s 10.2% (1Q: 9%, 4QFY14: 6.5%). The improved margins can be attributed to higher recognition of property-related jobs (gross margin of ~19%) while its lower margin KVMRT2 jobs had come to the tail-end during the quarter (gross margin of ~4%).

We expect margins to improve further as it will fully reflect margins of its property jobs. Notably, all of its new order book secured FY15F YTD are for high-rise properties. Thus, our investment thesis of margin expansion remains intact (9M’s 10% vs. our FY15F’s 10%). Future earnings will continue to be supported by its strong outstanding order book of RM517mil (as at end-March).

Prospects remain bright with a tender book of ~RM1bil. Econpile is also in strong position to bid for piling jobs for the upcoming KVMRT2 line, given that it had secured a large portion of the works for the first line (V1 and V6). We have increased our FY15F-17F DPS to reflect the latest payments. The ex- and entitlement dates for the interim dividend is 4 & 8 June, respectively.

Others :

Padini Holdings : Riding through the storm; expect a better FY16               BUY

Axiata Group : Weak 1Q15 as expected BUY

Star Publications : Decent quarter ahead of a challenging year    HOLD

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