Investment Highlights

• We maintain our BUY call, forecasts and FV of RM0.92 based on 8x FY18F EPS of 11.5 sen, 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 has recently entered into a strategic partnership with Gonvarri Material Handling AS (Gonvarri), whereby Eonmetall has obtained the licensing rights to manufacture and distribute steel racking solutions under the product flagship of Constructor from Europe for an initial term of 5 years with the option to renew for a further 5 years. The strategic partnership allows both Gonvarri and Eonmetall to expand on their mutual plans to manufacture and distribute Constructor steel racking solutions across Asia-Pacific on the basis of equal profit sharing.

• Eonmetall will also be able to expand its products range and market presence in Asia-Pacific leveraging the Constructor brand name through Eonmetall’s newly formed subsidiary Constructor Asia Sdn Bhd (CASB) which was incorporated in 4Q17. CASB is expected to begin its operation by 2H18 with an estimated annual revenue of RM40-60million in FY18-20F and a healthy mid to-high teens EBITDA margins.

• Meanwhile, Eonmetall will bear the full cost to set up the production facilities based on Gonvarri design and technology requirements, as well as technical expertise by Gonvarri for the steel racking production in accordance to Constructor’s quality standards prior to commencement of the production. The estimated capex cost in

• Based on the stipulated partnership agreement, Eonmetall will be granted three types of sales rights under the Constructor brand name which are: 1) 5-year irrevocable exclusive sales to the Asean region, Bangladesh and China, 2) 3-year conditional exclusive sales to all other Asian countries excluding the Asian part of Russia; and 3) 3-year non-exclusive sales to other parts of Asia (i.e. including Asia-Pacific).

• We are positive on the recent development but maintain our numbers as we have already imputed this into our forecasts previously.

Source: AmInvest Research - 20 Mar 2018