AmWatch - Econpile Holdings : Sustainable margins and job flow BUY, 3 Sep 2015

STOCK FOCUS OF THE DAY

Econpile Holdings : Sustainable margins and job flow       BUY

We maintain BUY on Econpile Holdings Bhd with an unchanged fair value of RM1.50/share – pegged at 14x FY16F PE. Prospects remain bright with a tender book of ~RM1bil while margins may surprise on the upside in the coming quarters.

As at end-June, Econpile has a strong outstanding order book of RM512mil (1.03x FY15). This will help support earnings for the next 15 months. More importantly, management noted out that tenders remain robust. We understand that 90% of tenders are still related to piling works for property projects within the Klang Valley with awards expected soon.  Given its experience in the KVMRT project, Econpile will be in a good position to bid for piling works under MRT2 and LRT3; tenders may come as soon as 2QCY16. Also in the pipeline are tenders for infrastructure projects – i.e. highways.  Given these, we think our expected replenishment rate of RM320mil for FY16F is achievable.

As for margins, management pointed out that it achieved net margin improvement to 11% for FY15 (vs. 8% in FY14) due to improved efficiency as well as lower effective tax rate. The lower tax rate is due to recognition of tax assets for capex spent. We also believe that better product mix had contributed to margin improvement as the KVMRT packages (which dragged down margins) were completed in Feb-March 2015. Note that property-related jobs contributed to 97% of gross profit in FY15 (vs. 93% a year earlier).

We think margin will be sustained at the current levels (net margin: 13.5% in 4Q15), or even surprise on the upside due to better efficiency and lower raw material prices. Overall, Econpile will continue to benefit from sustained demand for piling jobs in the industry – partly supported by infrastructure plans under the 11th Malaysia Plan. Valuations are undemanding at 8x PE currently; Econpile has a 20% dividend payout policy. Maintain BUY.

Others :

Malaysia Marine Heavy Eng : Site visit to the MMHE West Yard   HOLD

Property Sector : Good progress made at Bandar Malaysia           OVERWEIGHT

QUICK TAKE

Sarawak Cable : Wins Samalaju job worth RM19mil          BUY

NEWS HIGHLIGHTS

Sunway : Declares special dividend

UMW Oil and Gas : Takes delivery of drilling rig

Airlines Sector  : Keeps 9,000 permanent staff

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