AmWatch - Econpile Holdings: A strong finish to FY15 on margin expansion BUY, 27 Aug 2015

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Econpile Holdings: A strong finish to FY15 on margin expansion  BUY

We maintain BUY on Econpile Holdings Bhd with an unchanged fair value of RM1.50/share – pegged to 14x FY16F PE. Econpile ended FY15 with core earnings of RM47mil – up 35% from RM35mil a year earlier. Earnings are in line with both our and market expectations. The strong finish can be attributed to a lower tax rate and better margins as turnover only grew 3%. Sequentially, revenue fell 9% due to higher rain fall at job sites as well as the fasting month of Ramadhan. Nevertheless, Econpile’s earnings grew 11% to RM14mil.  Notably, margins continued its growth path (4Q’s 14% vs. 11% in 3Q) due to improved efficiency and higher recognition of property-related jobs. Recall that majority of its new jobs secured in FY15 (RM289mil) are property-related ones. All in, Econpile’s core net margin expanded 2.6ppts to 10.9% (vs. 8.3% in FY14). This exceeded our expectation of 9.7%.

Moving forward, earnings will continue to be supported by its outstanding order book of ~RM510mil (end-March: RM517mil). We have a conservative order book replenishment of RM320mil for FY16F. Prospects continue to be supported by its tender book of ~RM1bil. Despite the slowdown in property sales, we understand that demand for piling jobs remains resilient. Econpile is also a potential beneficiary of piling works for key infrastructure projects (e.g. MRT2) given its track record and experience.

We see possibility of margins improving further in the coming quarters due to higher recognition of outstanding property-related jobs it secured in FY15. Topline should also improve further on billings of outstanding jobs. For FY16F, we forecast earnings to grow 23% on net margin of 11% for FY16F. We introduce FY18F earnings at RM70mil. We continue to like Econpile for its strong execution, earnings delivery and leading position in the piling industry (est. market share of 25%). At the current price, valuations are undemanding at 7x. We maintain BUY.

Others :

Genting Bhd : RWLV’s budget to be finalised by year-end             BUY

Parkson Holdings : On track with regional-wide branding exercise             BUY

Hock Seng Lee : 1H15 margins weakened              BUY

Mah Sing Group : Cash is king     BUY

IHH Healthcare :1H earnings within expectations               HOLD

Hong Leong Bank : 4Q boost from lower tax and gain from sale of building            HOLD

Supermax Corporation : Earnings below expectations     HOLD

Media Chinese : Q1: Lifted by travel        HOLD

Sime Darby : Cash call a possibility            HOLD

Genting Malaysia : Hit by RM99.9mil loss in UK unit          HOLD

NEWS HIGHLIGHTS

MSM Malaysia Holdings: To build RM1.1 billion sugar refinery

Tenaga Nasional Bhd : TNB signs agreement with Jimah East

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