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This article first appeared in The Edge Financial Daily on August 24, 2017

EITA Resources Bhd
(Aug 22, RM1.68)
Maintain add with an unchanged target price of RM2.40:
 EITA Resources Bhd’s nine months of financial year 2017 (9MFY17) revenue was down 7.4% year-on-year (y-o-y) to RM210.5 million mainly due to lower marketing and manufacturing revenue as construction works for the mass rapid transit (MRT) lift project peaked in FY16. However, 9MFY17 net profit was up 28.3% y-o-y at RM17.7 million as the company recognised most of the profit from the MRT job in FY17. 9MFY17 marketing profit before tax (PBT) declined y-o-y but was offset by higher services PBT. No interim dividend per share was declared, in line with our expectations.

Third quarter of financial year 2017 (3QFY17) net profit declined 66.7% quarter-on-quarter to RM1.8 million as most of the profit from the MRT job was already recognised in the first half (MRT lift job was fully completed by June 2017). EITA’s marketing division received slower orders for the electrical and electronics products in 3QFY17. The service division also experienced slower execution of transmission sub-station projects in 3QFY17.

Tenders for MRT2 Phase 1 elevator jobs closed in May and we expect Mass Rapid Transit Corp Sdn Bhd to announce the winning bid over the next few months. As the only major local player bidding for this job, EITA stands a strong chance of winning at least one of the MRT2 elevator job packages. The successful completion of the MRT elevator project this year by EITA has boosted its track record, putting the company in a strong position to secure more elevator and lift infra jobs in the near future.

EITA has also tendered for the light rail transit Line 3 (LRT3) elevator job and we believe the LRT3 tender process will be similar to that of the MRT2. We also believe the company stands a strong chance of securing at least one of the elevator and lift packages for LRT3. LRT3 will have 26 stations, while MRT2 will have 37 (26 elevated and 11 underground).

We like EITA’s maintenance revenue for its lift business as this provides long-term recurring revenue for the company. We estimate that in 2017, the company should have around 2,800 elevators under its maintenance. On average, EITA produces around 250 lifts annually and gross profit margin from maintenance services is above 50%.

As at end-June, EITA’s balance sheet remained healthy with RM20.6 million net cash (RM3.4 million net debt as at end-March). Receivables fell from RM127.2 million (2QFY17) to RM103.5 million at end-June. We believe the company got paid for outstanding work done for the MRT job. — CIMB Research, Aug 22
 

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