ECONBHD (5253) - Econpile set to ride on infrastructure boom

ECONPILE Holdings Bhd is on the cusp of exciting times ahead. In slightly more than three months, the piling and foundation contractor has bagged close to RM400mil in contracts and more is in store as it has a tenderbook of more than RM1bil.

Analysts expect more jobs will flow through in the coming months with potential wins from Klang Valley Mass Rapid Transit (KVMRT) project.

Other prospective jobs include the Sungai Besi-Ulu Kelang Elevated Expressway (SUKE), Damansara-Shah Alam Elevated Expressway (DASH) and Duta-Ulu Klang Expressway (DUKE).

Not surprisingly, Econpile’s share price has soared. It has gained more than 31% since early March. It closed unchanged at RM1.31 yesterday. Year-to-date, it has appreciated some 22%.

Analysts believe that its continuous tenacity of securing more contracts going forward could further lend support to its stock price.

Chief executive officer Raymond Pang (pic) says the company has an outstanding orderbook book of RM788mil, its highest level since its inception. This, he says, would be recognised till financial year ending June 30, 2018 (FY18).

“Thus far in FY16, we have secured RM662.4mil worth of new jobs comprising infrastructure sector and property/mixed-development projects,” he tells StarBizWeek.

Without elaborating, Pang says Econpile’s tender book at any one time exceeds RM1bil, with success rate of about 15%-20%.

Econpile’s latest win is a RM208mil contract to undertake piling works for a mixed commercial development on Jalan Ampang. The contract was awarded by Oxley Rising Sdn Bhd. The contract entails bored piling and pilecaps, diaphragm walls, earthworks, foundation and substructure works. The duration of the contract is 26 months.

AmInvestment Bank is pleasantly surprised with its latest win as it brings Econpile’ new job wins in FY16 forecast to RM655mil, surpassing its replenishment target of RM500mil by 31%.

“Nevertheless, as we had previously guided, we believe any jobs secured this month will only contribute strongly to the group’s forecast earnings from FY17. Hence, we make no changes to our numbers. For FY17 forecast, we have a new order book target of RM450mil with potential upside,” it says.

The research house says any wins in the next few months will be timely, as 20% of its capacity will be freed following the completion of a few projects by July.

Analysts note that piling players would benefit from subcontract jobs from the main contractors for the RM32bil MRT Line 2.

Pang says it is “very exciting times” for the construction-related players with the ongoing infrastructure boom in the country. He says both the public and private sectors are calling for tenders for various infrastructure and property projects.

“Bored piling in particular is the preferred method to support buildings or developments located in congested, urban areas because it causes less vibration and noise pollution. Also, with buildings getting taller, requiring higher load factor and deeper basements, strong technical expertise comes into play,” he notes.

Pang says apart from major infrastructure projects like the upcoming KVMRT2 and LRT extensions, it are also eyeing opportunities to support the construction of highways such as SUKE and DASH.

“The visibility provided in our order book is up to FY18 at the moment, and we are generally optimistic of the robust construction industry.

“With our aggressive tendering and jobs in hand, we hope for Econpile to ride the infrastructure boom going forward. We are confident of taking on a greater role than previously assumed in the upcoming mega infrastructure projects,” Pang says.

Econpile posted its strongest quarter in the latest quarterly results. The company saw its net profit surged 43% to RM17.9mil from RM12.5mil a year ago, on 7% growth in revenue to RM122.1mil from RM114.1mil. Its margin for the nine-month period saw a marked improvement to about 14% from 10% previously.

The company also declared a second interim dividend of 2.5 sen per share in respect of FY16, which would be paid to shareholders on June 28.

Together with the first interim dividend of one sen, this would translate into a total dividend payout of RM18.7mil, or 38.2% of the nine months net profit. Econpile has a dividend policy of paying at least 20% of group net profit to shareholders.

Pang says Econpile’s financial performance thus far in FY16 is reflective of both the expanding construction-related sector, its competitiveness as well as operational efficiencies.

“With the nine months to March 31 net profit of RM49mil already exceeding RM46.6mil in FY15, we are well on track to set a new record in FY16,” Pang says, when asked if the latest quarterly results will be a bearings of Econpile’s financial performance for the rest of the financial year.

“As for the way forward, I can only say that we are optimistic based on our jobs in hand and continuous improvements in our day-to-day operations,” he adds.

Commenting on sustaining its margins, Pang explains that margins are a combination of a few factors such as higher machinery utilisation rate from ongoing projects, more advanced machinery fleet, efficient technical processes, soil conditions, weather and material prices.

“We aim to continue improving operational efficiency to achieve faster delivery, which will enhance our bottom line,” he says.

Pang reckons that the company typically set aside RM15mil to RM20mil annually for new machinery, equipment and tools. It also spend a fair bit on equipment and component maintenance on ongoing basis at its workshop in Rawang. Its utilisation rate is about 85% overall.

While the rising steel prices could affect the company, Pang says it has taken into account the higher prices of materials.

He notes that the company expects increases in raw material prices each year, and factors these considerations into its proposals.

In any case, most of its projects have a relatively short duration of nine to 18 months, and is able to forecast its requirements based on jobs in hand.

“It all boils down to how well we manage overall costing,” he says.

Econpile, however, is not affected by the volatility of ringgit.

“We are not affected by weakening ringgit against the strengthening of US dollar because our businesses are only conducted locally and, if at all, we are only impacted through purchases of machinery which are mainly from overseas,” Pang explains.

ECONBHD (5253) - Econpile set to ride on infrastructure boom