Econpile and Muhibbah Engineering UPDATE Econpile (ECON MK) ( | StockiesMY
Econpile and Muhibbah Engineering UPDATE
Econpile (ECON MK)
(BUY, TP:MYR0.62)
Econpile, through wholly owned subsidiary Econpile (M) SB, announced on 18 May that it has received a letter of award from Satin Magic SB to undertake a work package. This package comprises demolition, site clearance, earthworks, site works, and reinforced concrete works to LG2 and LG3 Slabs for a 7-storey luxury apartment with a 3-storey basement at Bukit Damansara, Kuala Lumpur, for a total contract sum of MYR27.1m.
The overall duration of the project is 15 months, and works are expected to commence in June. (Bursa Malaysia)
The new award represents Econpile’s latest win in FY21F (Jun), bringing YTD contract wins to MYR430m – still within the MYR500m expectation. Based on management’s latest guidance, we calculate that the company’s latest outstanding orderbook could be around MYR727m, which should keep it busy for more than one year.
Our call and TP are maintained. Currently, the biggest client – which makes up a sizeable value to Econpile’s orderbook – is Pavilion Damansara. New orders are expected to be secured from tenders already submitted, with values amounting to MYR500m. It comprises local jobs, which makes up about 90% of the total value. This also includes the contract of a smaller size from its property development client that is below MYR20m.
Downside risks to our call include a failure to secure new contracts, more intense competition among piling contractors, and prolonged downturn in the retail and property markets. Sudden restrictions on activities – possibly due to tighter lockdown measures, if implemented – may present a further downside risk.
Muhibbah Engineering (MUHI MK)
(SELL, TP:MYR0.88)
Muhibbah Engineering has announced that its subsidiaries have received multiple purchase orders or letters of intent from Jul 2020 until May 2021. These substantial orders total approximately MYR55m. (Bursa Malaysia)
The contracts should represent Muhibbah’s latest wins in FY21, which we believe are still within our MYR200m new job projections. Based on management’s latest guidance, we calculate that its latest outstanding orderbook could be worth around MYR479m.
Despite our SELL call, we believe the group should approach FY21 with more optimism, despite taking a cautious stance in adapting to the new normal. Activities have returned to normal levels, which should allow for further recoveries to take place. Given the slower-than-expected replenishment rate, we note that this has become a cause for concern over Muhibbah’s earnings visibility in the medium term. We make no changes to our stock rating or TP.
Upside risks to our call: A shorter-than-expected slowdown in passenger traffic, favourable compensation for its airports, and a faster-than-expected replenishment rate of new jobs in the construction and crane segments.
RHB Research
