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Monday, November 30, 2015

Econpile Holdings - Continued step-up in margins in 1Q BUY

- We maintain BUY on Econpile with an unchanged fair value of RM1.50/share – pegged at 14x FY16F PE.

- Econpile reported 1QFY16 earnings of RM14.5mil – up 52% from RM9.5mil a year earlier. This is on the back of a 5% fall in revenue.

- Earnings are in line – making up 25% of our full-year forecast and 27% of consensus’.

- Sequentially, earnings grew 4% on the back on a 3% dip in revenue. The lower revenue was due to certain projects being in their initial stages (which result in lower billings). These should pick up as the projects progress.

- As expected, Econpile’s margin continued its growth path due to improved efficiency, lower material costs and higher utilisation of machineries. Net margin expanded to 14.3% in 1Q from 9% a year earlier (and vs. 4Q15’s 13.5%).

- Econpile declared a dividend of 1 sen (1Q14: 1 sen). Econpile is expected to pay another dividend in 3Q (our total FY16F DPS assumption is 2.5 sen, which represents 2.4% yield). Econpile has a policy to pay out 20% of net profit as dividend. The ex and entitlement dates for the dividend are 11 and 15 Dec.

- Moving forward, earnings will continue to be supported by its outstanding order book of RM630mil (end-June: RM512mil).

- Just last week, Econpile had secured a RM95.5mil piling job for a mixed development in Month Kiara. YTD FY16F, it has already secured RM216mil (see Exhibit 5) – making up 68% of our replenishment expectation of RM320mil (FY15: RM490mil).

- We expect more wins given its tender book of ~RM1bil on the back of upcoming property and infrastructure jobs in the Klang Valley. Upcoming big-scale projects include Menara KL118, Bukit Bintang City Centre, TRX and Bandar Malaysia.

- Econpile is also seen as a possible beneficiary of piling jobs for the upcoming KVMRT2 and LRT2 given its experience in KVMRT1 (it secured piling jobs worth ~RM200mil).

- We maintain BUY. All in, Econpile continues to deliver both earnings and jobs wins. We like Econpile for its strong track record as a leading piling specialist, continued improvement in margins and sustainable contracts flow on healthy demand.
Source: AmeSecurities Research - 30 Nov 2015

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