Investment Highlights

• We maintain our BUY call, forecasts and FV of RM0.92 based on 8x FY18F EPS of 11.5sen, at a discount to the manufacturing sector’s average 1-year forward PE of 10- 11x to reflect Eonmetall’s relatively small market capitalisation of less than RM150mil.

• Eonmetall’s FY17 core net profit of RM16.2mil (excluding forex loss of RM2.5mil in 4QFY17 and RM5.0mil gains from acquiring a bio-coal plant at a discounted price in Q317) missed both our forecast and consensus estimates by 10%. We believe the variance against our forecast came largely from unfavourable movements in input costs for steel products during 4QFY17, resulting in a net loss of RM1.3mil during the quarter. We believe the loss was one-off in nature, and hence we maintain our FY18- 19F forecasts.

• The company’s FY17 turnover increased 25% YoY boosted by higher sales recognition from both machinery and equipment (M&E) and the steel product segment.

• Similarly, its FY17 core net profit rose by 35% on the back of stronger revenue recognition from its M&E and steel segments, as well improved margins primarily from its M&E segment.

• Eonmetall's earnings visibility is strong. The company is currently in the final stage of negotiation with a public listed company for the construction of several solvent oil extraction plants on a build-operate-transfer (BOT) basis and expects to deliver the plants as early 1HFY18. In addition, Eonmetall may secure additional two plants on an outright purchase basis which are expected to be delivered as early 1HFY18.

• Also, Eonmetall’s newly-formed subsidiary Constructor Asia Sdn Bhd (CASB) is expected to commence operations as early as 2HFY18 with estimated annual revenue of RM50mil. CASB will be granted the licensing rights by Constructor to manufacture and distribute steel racking solution within the Asia Pacific region ex-Middle East.

• We 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.

Source: AmInvest Research - 23 Feb 2018