Investment Highlights

• We cut our FY19F net profit forecast by 49% but maintain our projections for FY20–21F. We keep our FV of RM0.67 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 capitalization. Maintain BUY.

• Eonmetall reported a net loss of RM2.3mil in 9MFY19 vs. our full-year net profit forecast of RM11.4mil (consensus estimates for the stock are not available). We believe the variance against our forecast came largely from: (1) the delay in certain metalwork machinery shipments; and (2) the delay in the rollout of the Constructor racking systems. The earnings downgrade is to reflect these.

• Eonmetall was in the red in 9MFY19 vs. a RM9.1mil net profit a year ago, largely due to higher expenses on marketing of the Constructor brand racking systems, coupled with increased production cost for steel products.

• 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 4QFY19.

• 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 - 2 Dec 2019