Investment Highlights

• We maintain our BUY call, forecasts and FV of RM0.92 based on 8x FY18F EPS of 11.5 sen. This is at a discount to the manufacturing sector’s average 1-year forward PE of 10-11x to reflect Eonmetall’s relatively small market capitalisation.

• Eonmetall has entered into a build-operate-own-transfer (BOOT) arrangement with Felda Palm Industries Sdn Bhd (Felda Palm), a 72%-owned subsidiary of FGV. The arrangement entails Eonmetall to construct, commission, operate and maintain a palm fibre oil extraction (PFOE) plant each alongside six Felda Palm’s existing palm oil mills on a profit-sharing basis over 10 years. Upon successful implementation of these six PFOE plants, the same arrangement may be extended to another four palm oil mills owned by Felda Palm.

• We are positive on the latest development. Eonmetall has effectively delivered what it guided, i.e. concluding a major deal with a major planter involving the investment in several PFOE plants on a concession basis. Eonmetall will get two bites at the cherry: (1) profits from fabrication of the plants; and (2) recurring profits from the sale of the residual palm oil extracted over 10 years. We are keeping our forecasts which have reflected this.

• We continue to like Eonmetall for the growing acceptance by palm oil millers in Malaysia and Indonesia for its solvent oil extraction plants. Eonmetall enjoys good margins for these plants in the absence of competition, coupled with the in-sourcing of inputs (steel products and metalwork machinery) used in the fabrication of these plants.

• The next phase of growth for its solvent oil extraction plant business could come from the introduction of the concession model. The model is attractive to palm oil mill owners as it requires minimal capital outlay from them as Eonmetall will fund the construction cost of the solvent oil extraction plant in exchange for profit sharing.

Source: AmInvest Research - 5 Oct 2018