PETALING JAYA: Econpile Holdings Bhd will continue to stay resilient and prove its mettle, despite facing multiple constraints in the sector.
“This, coupled with our expectations of an improving sector outlook post mandatory control order (MCO), leads us to believe that the stock now looks primed to trade at a higher price earnings ratio (P/E), ’’ said RHB Research.
It has initiated coverage on the stock with a target price of 74 sen. That is derived by pegging 2021 earnings per share to a target P/E of 17x.
It said this was further justified by a sharp recovery anticipated in the financial year (FY) 2021, coupled with the scarcity of piling companies in the local scene.
“Econpile also has an advantage, due to its robust piling equipment, ’’ the house said.
Econpile is a piling and foundation specialist providing piling solutions and foundation works.
The research house believes the second half may offer fresh catalysts which should improve earnings visibility.
Econpile has an order book worth RM700mil, which provides revenue visibility for over the next two years.
The group is targeting RM500mil in new orders for FY21, having tendered for jobs locally and overseas.
The house said based on its latest order book, about 76% represent jobs from property developers. For the infrastructure segment, orders stood at RM253mil, consisting of Klang Valley MRT 2 and LRT 3 packages.
The implementation of the MCO has caused a slowdown in billings, as activities were halted for almost two months. This has led to the deferment of income, which usually amounts to at least RM40mil a month.
“As a result, we tweak our FY21 forecasts to reflect this earnings deferment, ’’ it said.
The house said the share of infrastructure jobs may increase, as it expects to see more opportunities emerge in the local infrastructure space. Consequently, this should help to buffer the impact from the recovering property market. It said property demand may increase.
“We believe demand will recover, albeit slowly. Despite the challenges brought upon by Covid-19 and the collapse in oil prices in the first half of 2020, prospects look brighter, as economic activities restart and pick up, ’’ the research house said.
RHB said Econpile had long-standing relationships with its clients and that gives the company a competitive edge.
“Its capacity is well-sized to absorb multiple jobs at a time, which gives it an edge in efficiently executing works and enhancing reliability.
“The group is able to handle up to RM1bil in orders at a time, ’’ RHB said.
However, the house also pointed out the downside risk to its call which include a failure to secure new contracts, intensifying competition among piling contractors, and a prolonged downturn in the retail and property markets.
Econpile reported revenue of RM372.4mil (+23.5% year-on-year) for the nine months of FY20. Property development projects were key contributors to this, amounting to RM267mil, or equivalent to 71.7% of the total, the report said.
Did you find this article insightful?