PILING and foundation companies such as Ikhmas Jaya Group Bhd and Econpile Holdings Bhd started the year with a bang after announcing a slew of contract wins within the first week of the year.
This has happened even as the broader market expectations continue to remain subdued heading into the new year.
Despite announcing further contract wins, their share prices have continued to be stuck in trading range, indicating that the bulls have not been too keen to take prices higher at this point in time although there is a fundamentally strong case to do so.
But notwithstanding the tense external sentiments, piling companies have continued to advance in terms of their future earnings prospects as they will see additions to their orderbooks in the longer run.
Earlier in the week, Ikhmas Jaya received a letter of award to undertake the construction of a RM166.4mil serviced apartments project for Bina Puri Holdings’s property unit Star Effort Sdn Bhd.
For Ikhmas Jaya, AmResearch’s analyst Max Koh says the contract win makes up 51% of its order book replenishment of RM330mil for the financial year 2016 ending Dec 31 compared with RM206mil in the year before.
This contract is expected to boost its outstanding orderbook to about RM280mil.
For Econpile, its unit Econpile (M) Sdn Bhd had been appointed to carry out RM20.3mil piling and sub-structure works from Ahmad Zaki Sdn Bhd.
Koh estimates that with this latest job, Econpile has secured RM236mil worth of jobs for FY16 ending June 30 – making up 74% of his replenishment expectations of RM320mil compared to RM490mil in FY15.
“We assume Econpile’s outstanding order book to amount to about RM620mil, which will support earnings over FY16 till FY17 forecasted,” he says.
Notably, Econpile has a good exposure to the strong construction industry, with a strong tenderbook of around RM1bil.
Both companies, which are operating in the niche area of piling and foundation works, are a proxy to the broader property and construction industry.
The construction industry had enjoyed a good boost in the previous year from the continued flow of contracts and more money being pumped into the sector due to the flurry of ongoing infrastructure projects such as the mass rapid transit (MRT) and light rail transit (LRT) in the Klang Valley.
On the flipside, the property industry had experienced a rather subdued outlook in the previous year due to high prices and increased cost of living and this has pushed property stocks on the back burner of investors minds for most of 2015.
However, recent banking statistics indicate that demand is salient, contrary to most of the market’s expectations that are generally expecting a slowdown in the property sector to bite further into loans growth.
CIMB Research notes in its monthly banking report that amazingly, residential mortgages had managed to sustain their loans growth at an average rate of 12.2% year-on-year from Aug-Nov 2015.
The growth in loans for residential mortgages sustained at a respectable double digit pace despite all the hype of the concerns surrounding the industry and bucking the slowdown experienced in the bigger loans industry in the August to November period.
The salient growth being experienced by both the infrastructure and property industries continues to be felt by the intermediary players within the supply chain such as Ikhmas Jaya and Econpile.
Both companies have been announcing contract wins progressively.
Analysts say that this could be due to these contracts being smaller in magnitude but ruled out that these had already been reflected into their share prices.
“It is far from that and actually, it is quite possible that their shares have further to rally as the market may have reached a short term bottom.
“We could see an expansion in valuations instead given that some of these companies valuations they are also quite cheap in the broader sense,” an analyst says.
The wider industry also includes Pintaras Jaya Bhd, which was listed back before the new millenium in the 90s.
While Pintaras can attest to being the sole listed piling company on the Bursa Malaysia for more than 15 years, this long held privilege was broken when Econpile was listed in 2014.
However, Pintaras still holds a considerable sway among investors as it had not lost its allure with its strong fundamentals and its efforts to put cash into good use that will add value to shareholders over the longer term.
At current prices, Pintaras is holding at valuations of 11.3 times historical earnings against 12.6 times forward earnings for FY16 and a market capitalisation of RM533.9mil.
“Value stocks such as Pintaras can also gain momentum moving forward to catch up with growth and defensive stocks as they are actively putting shareholders money to good use,” he says.
The company had recently obtained shareholders approval for it to purchase its own shares up to a maximum of 10% of its paid-up share capital. Other than that, Pintaras also usually parks some of its spare cash to be reinvested into the equity markets through a fund manager.
Its latest financial first quarter ended Sept 30 shows that it had RM20.7mil put into these investments for non-current assets.
It had a comfortable short term cash position available for use of 8.5 times these investments and retained earnings that is 8.4 times investments.
Econpile is today the biggest piling company on the Bursa Malaysia by market capitalisation of RM561.8mil, it is also trading at a valuation of 12.5 times historical earnings and 10.2 times forward earnings for FY16.
The new kid on the block is Ikhmas Jaya, which was just listed in July last year with a market capitalisation of RM353.6mil presently.
While its share price had corrected shortly after it was listed Ikhmas Jaya presently trades at a estimated valuation of 10.9 times earnings for FY15 and 9.7 times on FY16 estimated earnings being the cheapest among the three companies here.
Analysts say all three companies present an attractive entry opportunity from a bottoms up approach with adequate leverage for growth and free cash flow levels presently.
