This article first appeared in The Edge Financial Daily on October 8, 2018

Eonmetall Group Bhd
(Oct 5, 53.5 sen)
Maintain buy with a fair value (FV) of 92 sen: We have maintained our “buy” call, forecasts and FV of 92 sen based on eight times financial year 2018 forecast earnings per share of 11.5 sen. This is at a discount to the manufacturing sector’s average one-year forward price-earnings ratio of 10 to 11 times to reflect Eonmetall’s relatively small market capitalisation.

Eonmetall has entered into a build-operate-own-transfer (BOOT) arrangement with Felda Palm Industries Sdn Bhd, a 72%-owned subsidiary of FGV Holdings Bhd. The arrangement entails Eonmetall to construct, commission, operate and maintain a palm fibre oil extraction (PFOE) plant each alongside six Felda Palm’s existing palm oil mills on a profit-sharing basis over 10 years. The same arrangement may be extended to another four palm oil mills owned by Felda Palm.

We are positive on the latest development. Eonmetall has effectively delivered what it guided for, concluding a major deal with a major planter involving the investment in several PFOE plants on a concession basis. Eonmetall will get two bites at the cherry: i) profits from fabrication of the plants; and ii) recurring profits from the sale of the residual palm oil extracted over 10 years. We are keeping our forecasts. We continue to 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 insourcing of inputs used in the fabrication of these plants.

The next phase of growth for its solvent oil extraction plant business could come from the concession model. The model is attractive to palm oil mill owners as it requires minimal capital outlays from them as Eonmetall will fund the construction cost of the solvent oil extraction plant in exchange for profit sharing. — AmInvestment Bank, Oct 5