Investment Highlights

• We cut our FY19–21F earnings forecasts by 14%, 16% and 13% respectively, lower our FV by 16% to RM0.67 (from RM0.80 previously) based on 7x revised 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 RM1.5mil net profit in 1HFY19, vs. our full-year forecast of RM14.4mil (consensus estimates for the stock are not available). We believe the variance against our forecast is mainly due to the delay in the metalwork machinery shipment (estimated at US$3mil or RM12.6mil) that was supposed to happen in 2QFY19.

• 1HFY19 net profit dropped by 63% largely due to lower profit from the non-racking product backed by higher expenses on marketing of “Constructor” brand racking system.

• The earnings downgrade is largely to reflect the delay in the rollout of the Constructor racking system (we previously assumed a full swing this year).

• On a brighter note, we expect the rollout of the FGV buildown-operate-transfer (BOOT) palm fibre oil extraction (PFOE) plants to be on schedule, with the fabrication for the first three units being carried out onsite currently and the commissioning expected in 4QFY19F.

• 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 Sept 2019