Econpile Holdings Bhd has secured a significant contract worth RM71.2 million in Kuala Lumpur, involving demolition, substructure, and basement works for a 55-storey mixed-use development at Jalan Sultan Ismail. This latest win, which brings the company's year-to-date (YTD) total to RM98 million, marks its second contract for FY2025. The project, which includes office, hotel, and SOHO units, is expected to commence on 2nd September and will span a 28-month period, concluding in December 2026. CGS International Stock Broking House remain optimistic about Econpile's prospects, maintaining an ADD rating despite reducing the company's FY2025-FY2026 earnings per share (EPS) forecast and lowering the target price (TP) to RM0.56.
The company's tender book currently stands at RM1 billion, with 90% focused on property projects, which generally offer higher margins compared to infrastructure projects. Analysts anticipate Econpile's order book, which amounts to RM480 million as of September 2024, to benefit from these higher-margin property projects. The company expects to secure new orders worth RM400 million to RM450 million for FY2025, matching its FY2024 levels. Despite recent quarters in the red, Econpile's strategy to save capacity for better pricing and the completion of a legacy project at Pavilion Damansara Heights Phase 2 by December 2024 is expected to lead to a gradual earnings recovery, with the first quarter of FY2025 likely to be profitable.
Econpile is also positioned to benefit from two long-term trends favouring piling contractors. The relaxation of the 100% en-bloc sales requirement for existing strata title holders is expected to spur construction activity within urban areas, particularly in prime locations like the KLCC vicinity. Additionally, recent geotechnical requirements by DBKL, following a sinkhole incident in Kuala Lumpur, could create more opportunities for piling companies with expertise in bored piles, such as Econpile.
Despite cutting the FY2025/FY2026 EPS by 58% and 42% respectively, due to revised order win estimates and adjusted gross profit margins, the company is still viewed as a key beneficiary of the anticipated revival in government infrastructure spending. The revised TP of RM0.56 reflects a fair valuation based on a 0.6x PEG ratio and an FY2025 price-to-book value (P/BV) of 2.2x, which is above the mean since 2014, supported by a strong forecasted EPS compound annual growth rate (CAGR) of 98% for FY2025-2027.
Source: CGS
Title: Sizeable win but gradual earnings recovery