Investment Highlights

• We maintain our forecasts but raise our fair value by 31% to RM0.80 (from RM0.61 previously) as we roll forward our valuation base year to FY20F (from FY19F). Our revised FV is based on 7x FY20F EPS, which is at a discount to the manufacturing sector’s average forward PE of 10–11x to reflect Eonmetall’s relatively small market capitalisation. Maintain BUY.

• Eonmetall reported only RM0.3mil net profit in 1QFY19, vs. our full-year forecast of RM14.4mil (consensus estimates for the stock are not available). However, we still consider the results within our expectations as we expect earnings to come in much stronger in the subsequent quarters with the implementation of the build-operate-own-transfer (BOOT) palm fibre oil extraction (PFOE) project with FGV, coupled with the rollout of the Constructor racking system being in full swing.

• 1QFY19 net profit dropped by 91% YoY largely due to the low shipment of metalwork machinery. However, we are not perturbed as fluctuations in quarterly earnings is common for the company given its relatively small quarterly earnings base.

• Eonmetall guided for a much stronger performance from 2QFY19F onwards underpinned by: (1) a pick-up in metalwork machinery shipment (estimated at US$3mil or RM12.6mil alone in 2QFY19F); (2) progress billings from FGV’s BOOT PFOE plants (fabrication for the first three units is currently being carried out onsite, with commissioning expected in 4QFY19F); and (3) the rollout of the Constructor racking system following the grant of the manufacturing and distribution licence by the principal in May 2019.

• 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 will 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. Eonmetall’s racking system business is also poised for tremendous growth underpinned by Constructor products.

Source: AmInvest Research - 3 Jun 2019