EP Manufacturing Bhd (EPMB) share price appears to be gaining momentum after trading sideways since early August. However, over a year basis, the counter lost 18.2% in value to close at 63 sen on Oct 28.

Investors are probably cautious over the company’s poor financial performance. It saw a 78% year-on-year plunge in net profit to RM2.9 million in 2QFY24 despite higher revenue of RM144.8 million. This was mainly due to the higher profit recorded in the preceding year quarter was due to recognition of gain on disposal of property, which is one-off in nature.

On a half year basis, the autoparts manufacturer’s net profit fell 56% y-o-y to RM7.5 million while revenue rose to RM309.6 million from RM290 million. The stock is currently trading at a Price / Book Value multiple of 0.44x based on a book value per share of RM1.42 as of end-Jun 2024.

Looking ahead, EPMB plans to venture into the vehicle assembly business as part of its diversification strategy to broaden its earnings base. This will be via a share placement to EPMB’s largest shareholder Mutual Concept Sdn Bhd and Bermaz Auto Bhd.

Post placement, Bermaz Auto will own 11.54% of EPMB’s enlarged share base, making it the second largest shareholder after executive chairman and founder Hamidon Abdullah. EPMB said the funds to be raised, RM39.65 million will allow it to raise funds to part finance the construction of its manufacturing hub in Melaka.

The Melaka hub will become an assembly hub for internal combustion engine (ICE) vehicles and electric vehicles (EV). The entire construction project will cost the group RM100 million.

Many are positive on Bermaz Auto's investment as it is a diversification strategy to ensure the viability of its completely-knocked down programme. There is already a growing interest for domestic assembly from Chinese automotive original equipment manufacturers.

EPMB recently secured two vehicle assembly agreements with China’s Great Wall Motor and Beijing Automotive Industry Corp International. It is indeed timely for EPMB to also diversify its earnings and be a major player in the vehicle assembly business.