MARKET DEVELOPMENT
Higher Earnings Ahead For Eonmetall, Says AmInvest Research
Higher Earnings Ahead For Eonmetall, Says AmInvest Research
18/07/2017 (The Star) - AmInvestment Research has raised its net profit forecast for Eonmetall Group by 13% for FY18 and 28% for FY19 and upgrade its fair value to 97 sen from 78 senon higher revenue expected from three segments.
It said on Tuesday this fair value was based on eight times FY18F EPS of 12.1 sen, which is at a discount to the manufacturing sector’s average one-year forward price-to-earnings (PE) of 10 to 11 times to reflect Eonmetall’s relatively small market capitalisation of less than RM150mil.
The earnings upgrade in FY18 and FY19 is to reflect the revenue recognition from its solvent extraction plant business, product and capacity expansion and diversification and overseas expansion.
Firstly, Eonmetall offers the sale of solvent extraction plant to palm oil mills via outright sales and build-operate-and-transfer or through joint ventures.
Currently, Eonmetall is in negotiation with a public listed company to build several palm-pressed fibre oil extraction (PFOE) plants on a build-operate-and-transfer basis and is expected to finalise the arrangement in 2H17.
In addition, Eonmetall is making inroads into Indonesia, offering its SEP to the palm oil mills on either a BOT or JV basis.
Secondly, the group has increased its production capacity for manufacturing of downstream steel products by 100% to 30,000 tonnes per annum and machinery & equipment (M&E) by 60% to 80 units per annum.
The downstream products include hypermarket racks, new boltless, racking with galvanised materials, furniture racks and livestock (broiler/breeder), while the M&E product is deformed bar.
Thirdly, Eonmetall plans to expand its business to overseas due to exceptional growth. It plans to penetrate into these markets via 1) JV for steel processing plant in the UAE (2HFY17) to cater to the demand of downstream steel products in the Middle East and North Africa (MENA) region; and 2) JV for steel racking manufacturing plant in the UAE (2HFY17) and Bangladesh (1HFY18), to cater to the demand in MENA and South Asia region.
“We like Eonmetall for the growing acceptance by palm oil millers in Malaysia and Indonesia for its oil extraction plants.
“Eonmetall 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,” it said.
It said on Tuesday this fair value was based on eight times FY18F EPS of 12.1 sen, which is at a discount to the manufacturing sector’s average one-year forward price-to-earnings (PE) of 10 to 11 times to reflect Eonmetall’s relatively small market capitalisation of less than RM150mil.
The earnings upgrade in FY18 and FY19 is to reflect the revenue recognition from its solvent extraction plant business, product and capacity expansion and diversification and overseas expansion.
Firstly, Eonmetall offers the sale of solvent extraction plant to palm oil mills via outright sales and build-operate-and-transfer or through joint ventures.
Currently, Eonmetall is in negotiation with a public listed company to build several palm-pressed fibre oil extraction (PFOE) plants on a build-operate-and-transfer basis and is expected to finalise the arrangement in 2H17.
In addition, Eonmetall is making inroads into Indonesia, offering its SEP to the palm oil mills on either a BOT or JV basis.
Secondly, the group has increased its production capacity for manufacturing of downstream steel products by 100% to 30,000 tonnes per annum and machinery & equipment (M&E) by 60% to 80 units per annum.
The downstream products include hypermarket racks, new boltless, racking with galvanised materials, furniture racks and livestock (broiler/breeder), while the M&E product is deformed bar.
Thirdly, Eonmetall plans to expand its business to overseas due to exceptional growth. It plans to penetrate into these markets via 1) JV for steel processing plant in the UAE (2HFY17) to cater to the demand of downstream steel products in the Middle East and North Africa (MENA) region; and 2) JV for steel racking manufacturing plant in the UAE (2HFY17) and Bangladesh (1HFY18), to cater to the demand in MENA and South Asia region.
“We like Eonmetall for the growing acceptance by palm oil millers in Malaysia and Indonesia for its oil extraction plants.
“Eonmetall 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,” it said.