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Earnings forecasts on Malaysia’s Econpile cut

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Econpile accepts contract for piling and substructure works for an integrated entertainment complex in Phnom Penh. File pic shows a project in KL

Earnings forecasts on Malaysia’s Econpile cut

Aminvestment Bank Research has cut its earnings forecasts for Kuala Lumpur-listed Econpile Holdings Bhd on its belief that the Malaysian government is unlikely to roll out new major public infrastructure projects over the short-term.

It said in a note: “We maintain our view that the government will have very limited room for fiscal manoeuvre in 2021 given the elevated national debt, even before the pandemic.

“The government’s fiscal position has been weighed down further by the economic impact of the pandemic [including reduced tax and petroleum revenues], as well as the massive relief spending to cushion the economic impact of the pandemic.”

It added that there is an acute oversupply situation in the high-rise residential, retail mall and office segments, which translates to weak prospects in property-related job wins for piling contactors like Econpile.

AmInvestment noted that Econpile does not expect a significant improvement in margins over the immediate term given the various operational restrictions under the new norm and additional costs incurred with regards to migrant worker welfare.

The research house assumes an average earnings-before-interest-and-taxes margin of six per cent in fiscal year 2021, before recovering to 10 per cent in fiscal years 2022-2023 backed by a high-margin Cambodia job.

Econpile is targeting mainly small piling and substructure jobs locally and expects to be able to meet its new job target of 500 million ringgit ($123 million) in fiscal year 2021.

Year-to-date, the group has secured 403 million ringgit in new jobs, including a $85.7 million piling and substructure work subcontract for an integrated entertainment complex in Phnom Penh, Cambodia.

AmInvestment reduced its net profit forecasts for fiscal years 2021-2023 by 42 per cent, two per cent and one per cent respectively but maintained its fair value at 18 sen (4.44 US cents) per share based on eight times revised fully diluted fiscal year 2022 forecast earnings per share.

“Econpile’s valuations are excessive at 17-31 times forward earnings on muted earnings growth prospects,” it said while reiterating its “underweight” recommendation on the stock.

On the Bursa Malaysia, Econpile’s share price rose one sen or 1.14 per cent to close at 0.45 ringgit on March 2 for a market capitalisation of 630.79 million ringgit, with 3.11 million shares traded.



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