AmWatch - Econpile Holdings : Piling on jobs and better margins, 11 Aug 2014

STOCK FOCUS OF THE DAY

Econpile Holdings : Piling on jobs and better margins   Buy

We initiate coverage on Econpile Holdings Bhd with a BUY and a fair value of RM1.28/share – pegged to a PE of 15x FY15F EPS. Our investment thesis is premised on:- (i) Econpile’s stronghold on the market as one of the leading piling contractors in Malaysia; (ii) net margin improvements of 1-2ppts per annum as the management focuses on jobs with higher margins; (iii)  a strong outstanding order book of ~RM600mil that will last the group the next 6-18 months; and (iv) new job wins of ~RM320mil per annum on the back of continuing jobs flow in Malaysia. 

Econpile’s earnings are set to grow by 16% to RM32.4mil in FY14F (ended June) before rising further by 41% to RM45.7mil in FY15F on the back of the strong outstanding order book. Earnings will further rise to RM53mil in FY16F. Its prospects are premised on its strategy to focus on building projects (instead of infrastructure jobs) which yield better margins. As it is, about 8% of its current order book is in infrastructure. Notably, the group is scheduled to complete its KVMRT1 jobs by October, which will free up 10-12 machineries for other building jobs.

As such, we project net margins to improve by 1-2ppts per annum to 11% in FY16F. With a tender book of RM2bil, we estimate new contract wins of RM320mil per annum for FY15F-FY16F. As at end-June, the group had an outstanding order book of RM490mil. Since its listing on 30 June, it has secured three building contracts worth RM136mil. We expect more jobs to flow through.

Econpile is in a net cash position as 25% of its IPO proceeds of RM48.6mil have been allocated to repay borrowings. Capex will be minimal at RM10mil-RM15mil per annum. With a policy to distribute at least 20% of its profit after tax to shareholders, we are forecasting DPS of 1.3sen-2.0sen each of FY14F and FY15F, which translates to yields of 1%-2%. We peg Econpile at a premium, with a 15x PE given its stronghold in the piling industry. BUY.

Others :

Petronas Gas : Steady recurring profile under new GPTA              Buy

Malaysian Airline : To claw back some, or to commit more?          Accept Offer

QUICK TAKE

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