Some say Econpile Holdings Bhd’s work is not visible even though the company is involved in many mega infrastructure projects, including rail projects such as the MRT and LRT in the Klang Valley and many skyscrapers in Kuala Lumpur.
Indeed, construction can only start after Econpile has finished the piling and laying the foundations to support the infrastructure above ground.
It is noteworthy that the group achieved double-digit return on equity (ROE) in the three financial years ended June 30, 2016 (FY2016), FY2017 and FY2018, making it the winner of The Edge Malaysia Centurion Club corporate award for the Highest Return on Equity Over Three Years in the construction sector for listed entities with a market capitalisation of RM100 million to under RM1 billion.
Nonetheless, the operating environment became tough for Econpile after the current government cut back on public infrastructure projects for the sake of fiscal discipline.
There has been a dearth of jobs, resulting inevitably in margins being squeezed. This was reflected in its results for FY2019. From a weighted return on equity (ROE) of 27.76% in the past three financial years, Econpile generated ROE of 6.45% in FY2019.
Its gross profit margin shrank to 9.6% in FY2019 from 18.1% in the previous year while gross profit declined to RM64 million from RM131.9 million in the preceding year.
In its 2019 annual report, group managing director The Cheng Eng explains that the contraction in gross profit margin was due to cost overruns and idling costs incurred for two specific projects in the second quarter ended Dec 31, 2018 (2QFY2019).
“Still, it is noteworthy that despite the setback in 2QFY2019, the group’s bottom line and corresponding margins stabilised from 3QFY2019 onwards on the back of stronger contributions from our ongoing works in property development and infrastructure projects,” he says.
Despite the narrower gross profit margin, it is worth noting that Econpile did a better job of replenishing its order book in FY2019 compared with FY2018. During the year, the group secured RM643.7 million in new orders compared with RM450 million in FY2018.
The slowdown in the construction industry has put the resilience and management skills of companies, including Econpile, to the test. Its ability to secure more jobs when the going gets tough speaks volumes about the company.
Among the major contracts Econpile has secured is the one for Phase 2 of Pavilion Damansara Heights with a total value of RM331.2 million. The contract is for bore piling for the mixed-used development as well as basement and substructure work.
The group has also secured contracts worth RM64 million for the Gemas-Johor Baru electrified double-tracking project and RM44.7 million to undertake station works for the Hospital Kuala Lumpur Station of the Klang Valley MRT2.
These new contracts have increased Econpile’s order book to about RM950 million. Its order book cover ratio of 1.4 times FY2019 revenue of RM663.3 million will provide earnings visibility in the next two years, according to Malacca Securities.
While spending on mega infrastructure projects, such as the East Coast Rail Link, KL-Singapore High-Speed Rail and Johor Baru-Singapore Rapid Transit System, is still pending, the government’s willingness to pour funds into these projects is positive for the construction sector.
“With the potential revival of mega infrastructure and property projects, such as the ECRL and Bandar Malaysia, we expect the construction industry to pick up and gain momentum,” group managing director The says in the 2019 annual report.
“We will be tendering for the piling and substructure work portions for a number of infrastructure projects. Having done multiple undertakings for KVMRT2 and Pavilion Damansara Heights, we are optimistic about securing some of our tenders for the mega projects.”
See the other winners in The Edge Malaysia Centurion Club Corporate Awards 2019 here.