Investment Highlights

• We maintain our BUY call, forecasts and FV of RM0.97 based on 8x FY17F EPS of 12.1sen, a discount to the manufacturing sector’s average 1-year forward PE of 10- 11x to reflect Eonmetall Group’s (EG) relatively small market capitalisation of less than RM150mil.

• EG’s 1HFY17 net profit came in at 73% of our and consensus full-year forecasts. However, we consider the results within expectations as Eonmetall's results could be volatile on a quarterly basis due to lumpy billings. We expect its earnings to moderate over the remaining quarter of the year.

• 1HFY17 net profit fell 22% YoY largely due a high base a year ago. Recall, 1HFY16 results were bumped up by sizeable billings from EPCC for solvent extraction plants.

• EG's earnings visibility is good. For the machinery and equipment division, EG is currently negotiating with a publicly listed company for the construction of several PFOE plants on a build-operate-transfer (BOT) basis. Additionally, EG is making inroads into Indonesia, offering its SEP to the palm oil mills on either a BOT or JV basis. Meanwhile, its steel and trading division is anticipated to grow healthily with strong demand from steel racking solution.

• We like EG for the growing acceptance by palm oil millers in Malaysia and Indonesia for its oil extraction plants. EG enjoys good margins for these oil extraction 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. Generally, steel products, metalwork machinery and oil extraction plants each contribute about a third to EG group earnings.

Source: AmInvest Research - 25 Aug 2017