• We retain our forecasts and FV of RM0.80 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, via a 24:41:35 JV with private companies Kapar Holding and Kapar Land, has submitted a winning bid for 421 acres of land in Klang tendered out by Sime Darby Plantation at RM155.7mil or RM8.50 per sq ft. The land will subsequently be subdivided in accordance with the parties’ equity stakes in the JV, and as such, Eonmetall will be entitled to a 100-acre lot for RM37.1mil.

• Eonmetall will use the land for future expansion of its operations, including a new warehouse, as its existing 60-acre land in Kawasan Perusahaan Valdor, Penang, is already fully utilitsed. Other advantages of the land include its proximity to Port Klang (which will result in savings in logistics costs and better efficiency for its export business) as well as its proximity to several palm oil mills (which could be potential buyers of its solvent oil extraction plants).

• The acquisition will increase Eonmetall’s net debt and gearing of RM109mil and 0.64x at present to RM146.6mil and 0.85x respectively. At these levels, we believe Eonmetall will have limited headroom to gear up further. We maintain our forecasts, assuming the holding cost for the land is to be capitalised.

• 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 - 15 Jul 2019