IPO - Econpile

Issue Price: rm0.54
Closing Date: 18 June 2014
Listing Date: 30 June 2014

The listing will see Econpile issue 90 million new shares and sell 55 million existing shares under the offer for sale.

Of the 90 million new shares, 27 million shares have been earmarked for the Malaysian public, 3.5 million shares for eligible staff, 47.5 million shares for identified investors through a private placement, and 12 million shares for Bumiputera investors approved by the International Trade and Industry Ministry (Miti).

The remaining 55 million offer for sale shares will be placed out to Miti-approved bumiputra investors.

Due to the limited amount of shares available, fund managers say the placement portion is all but snapped up.

Econpile is run by The as group managing director, Pang and The’s daughter The Kun Ann as executive director. The and Pang will control over 70% of the company post-listing.

The piling sector is on the cusp of a “supercycle”, backed by the onset of major infrastructure, high rise and oil and gas projects. There is also a “chronic shortage” of piling capacity locally.

Things were so bad that when the Kelana Jaya and Ampang LRT line extensions got underway a couple of years ago, some viaduct main contractors had to resort to buying their own bored piling machines.

This was only exacerbated by the first line of the MRT, which went into full swing last year.

Construction projects such as Kwasa Damansara, Petronas’ Rapid, the West Coast Expressway, Langat 2 and Warisan Merdeka are expected to kick off this year, while the estimated RM25bil MRT line 2 could start work as soon as the fourth quarter of 2015.

Econpile has two core business, namely piling and foundation services. Under its piling segment, the firm provides bored, driven and jack-in piles. It specialises in bored piling, which is the most efficient of the three piling techniques.

Bored piling entails drilling a hole in the ground until the required depth. Once the earth is removed by the boring process, concrete and steel bars are used to fill the hole. This method is best suited to high-rise, bridge construction and other heavy engineering works.

Although it is more expensive, there will always be demand for bored piling, especially in the city and urban areas due to the increase in high-rises and smaller footprint of buildings.

For substructure and basement works, Econpile offers both the conventional bottom-up construction as well as top-down. With the top-down method, both the underground substructure and above ground superstructure can proceed simultaneously.

Econpile had bagged two of the seven piling packages for the MRT.

The group’s orderbook as of October 2013 stood at RM453.49mil.

It is currently (May 2014) busy with Selangor Dredging Bhd’s The Hub in Petaling Jaya SS2, the 50-storey Elite Pavilion tower in Jalan Bukit Bintang, and an underground pedestrian crossing that will link Pavilion KL to Fahrenheit 88.

Econpile has a 13% share of Malaysia’s piling and foundation services market, which was valued at RM2.83bil as of end-2012.

Besides property-related projects, Econpile has also done work for power plants such Manjung 4, Tanjung Bin and Jimah.

The firm gets most of its jobs from the Klang Valley, although Penang and Johor are catching up. The proposed Malaysia-Singapore high speed rail is likely to need strong piers. In Penang island, buildings are getting taller.

The upcoming highways like the Kinrara-Damansara Expressway and East Klang Valley Expressway will require extensive piling.

Econpile’s only listed rival is Pintaras Jaya Bhd. Besides Econpile and Pintaras Jaya, other key piling players include unlisted Geopancar Sdn Bhd and the Sunway group’s Sunway Geotechnics (M) Sdn Bhd.

There is a huge gap in their profit margins. Pintaras Jaya posted a net profit of RM52.32mil in the year to June 30, 2013 (FY13) on revenue of RM172.85mil, which translates to a net margin of 30.3%. Econpile, meanwhile, raked in FY13 net profit of RM27.87mil and sales of RM386.07mil, giving it a profit after tax margin of only 7.2%.

This means Pintaras Jaya has almost double the net profit and four times the profitability of Econpile with less than half the sales.

Be that as it may, Econpile’s profit after tax and revenue had expanded by a robust compound annual growth rate of 35.1% and 23%, respectively, in the three years through FY13.

Its gearing ratio as of October 2013 stood at 0.38 times. Pintaras Jaya, in contrast, is debt-free with cash of RM104.7mil.

Econpile had lost out to Pintaras Jaya on the RM74mil contract to provide foundation works for Permodalan Nasional Bhd’s 118-storey Menara Warisan Merdeka.

The 19-acre development will also reportedly feature a mall, luxury hotels, and residences. At over 500 metres, the tower alone is estimated to cost between RM2.5bil and RM3bil, and the entire project, RM5bil.

Econpile had inked on Tuesday a RM75mil job for piling and basement works for the Nusmetro Group’s Arte residence in Jalan Ampang.