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.

• Eonmetall’s 1QFY18 net profit came in at 14% of our fullyear forecast and full-year consensus estimates respectively. However, we consider the results within expectations as we expect stronger quarters ahead underpinned by: (1) maiden contribution from its steel rack OEM contract with Constructor from Europe from 2HFY18F; and (2) potential billings from a build-operatetransfer (BOT) contract currently in final stages of negotiation with a publicly listed plantation company for several solvent oil extraction plants. In addition, Eonmetall may secure orders for two new plants on an outright purchase basis before the year is out.

• 1QFY18 net profit decreased 53% YoY largely due to lower sales of machinery and equipment and trading activities, coupled with the shift in product mix towards lower-margin products. We are not perturbed as fluctuation in quarterly earnings is common for the company given its relatively small quarterly earnings base.

• 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. The next phase of growth for its solvent oil extraction plant business could come from the introduction of the BOT 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.

Source: AmInvest Research - 30 May 2018