CGS International (CGS) made a site visit to the largest project Econpile Holdings Bhd clinched YTD in FY6/24F on Mar 25, which is a RM101m contract to undertake sub-structure works for 3 blocks of Small Office Home Office (SOHO), comprising 2 blocks of 50-storey SOHO and a block of 51-storey SOHO, together with podium and basement carpark floors, in a development known as Arte Star in Sungai Besi.
Econpile told CGS that Section 1 (of three) is almost completed and ahead of schedule. The meeting included a group of fund managers.
CGS also viewed its largest rig, the Bauer BG50, which is the only one in Malaysia able to pile up to 100m deep. This was used in the Rapid Transit System in Johor and the Cambodia Naga 3 projects.
The site visit was followed by a meeting with Group CEO Raymond Pang, and Deputy Group CEO The Kun Ann.
Key highlights from meeting with top management were Econpile’s YTD FY6/24 wins totalled RM392m (orderbook of c.RM480m at Mar 2024). Management expects FY24F new wins of RM500m (vs. our forecast of RM400m).
For FY25F/FY26F, CGS new order win forecasts are RM650m/RM700m.
Besides potential domestic wins for local infrastructure (Penang LRT and MRT 3), highrise residential projects, semiconductor factories and data centres, new wins could come from private sector residential projects in Cambodia and infrastructure projects in Singapore, such as Changi Airport Terminal 5, it said.
The tenders for Changi terminal 5 have opened, with total construction cost estimated at S$10bn and a need for c.13,000 piles, the company said.
Econpile has a relatively assured win from the Sungai Klang Link (SKL) project, a planned 53km Klang-Kuala Lumpur highway, via an MOU entered in Nov 2023, management said, although the timing of the conversion to a letter of award remains fluid.
The project owner is still awaiting finalisation of the concession agreement with the government. Once done, this could pave the way for the eventual awards of RM500m1bn in piling and bridge works to Econpile, management said.
What are the key concerns?
Econpile’s ability to win new contracts has been impressive but CGS sense investors remains sceptical of its ability to convert new jobs into higher margin earnings, especially after it posted net losses in 9 of the last 10 quarters.
However, CGS believes Econpile should swing into the black in 2HFY24F as most of its low-margin legacy projects have been depleted, while it also wrote down margins for some projects in 2QFY24.
Out of its total receivables of RM447m as at Dec 2023, the largest is the Pavilion Damansara Heights project (c.RM100m). We understand payments are now more upto-date compared to 6-months ago and it continues to receive payments monthly.
CGS expects upcoming demand for quality piling contractors to outstrip the capacity of local players, and input FY25F/26F GP margins of 10%/15% (vs. c.20% peaks in FY16- 18) which we believe is achievable.
This is in line with management’s read on the sector where GP margins can only recover strongly to the mid-to-high teens once large-scale local infrastructure projects are awarded.
When this happens, the piling market is likely to face a shortage of machinery, giving Econpile more pricing power, in our view.
CGS reiterates Add and TP of RM0.61
CGS reiterated their Add call and TP of RM0.61 based on a 0.5x CY24F PEG (vs. larger cap peers of 1.0x).
Key re-rating catalyst include rapid rollouts of mega-infra projects.
Downside risk: delays in infra rollouts affecting its new order prospect and higher raw material costs which may impact margins negatively, CGS added.
