KUALA LUMPUR: Lift and bus duct manufacturer EITA Resources Bhd is looking at inorganic ways to grow its business to reach its ambitious RM1 billion revenue target by 2020, with mergers and acquisitions and joint ventures (JVs) on the table, said group managing director Fu Wing Hoong.
This is not surprising as the company only recorded revenue of RM198.91 million in its financial year ended September (FY14), just about 20% of its target by 2020.
One recent example of its bid for inorganic growth is the JV between its wholly-owned unit EITA-Schneider (Mfg) Sdn Bhd and Chinese firm Shanghai Step Electric Corp, which it hopes will boost its manufacturing division.
Fu, said in an interview with The Edge Financial Daily, that the company is also eyeing other projects in the Mass Rapid Transit (MRT) Line 2 from Sungai Buloh to Serdang and Putrajaya. The tender for that is expected to begin by year end, he added.
EITA Resources already has two MRT contracts to supply lifts and escalators — worth RM95 million — in the bag. Those are expected to contribute to its earnings in the fourth quarter (4Q) of FY15.
Furthermore, Fu said the company, which has already booked some projects in Myanmar and the Middle East, is eyeing Southeast Asia and the Middle East for business expansion.
Fu also shared that the company’s fire-resistant cable, Pyrotec, which was launched in January this year, has already garnered an order book of RM4 million, largely from Indonesia.
“We took quite a significant, aggressive marketing with our partner ... and we have good achievement and market penetration, not only in Malaysia but also overseas. That [RM4 million order book] is a sign of good penetration and market acceptance, so we are optimistic,” he said.
EITA Resources’ core business is the design, manufacturing, installation, commissioning and maintenance of lifts, escalators and travelators under the brand EITASchneider. The company entered into a technical collaboration agreement with Schneider Steuerungstechnik GmbH in 2002.
Under its wholly-owned subsidiary, Furutec Electrical Sdn Bhd, the company is involved in the design and manufacture of bus duct systems and fabricated metal products.
While EITA Resources is looking to boost revenue, it is mindful of headwinds that come in the form of uncertainty over demand, supply and stockholding in the market, no thanks to the implementation of the goods and services tax on April 1.
The weakened ringgit against the US dollar — closed at 3.65 last Friday — is also expected to affect its earnings in FY15 as local demand will be impacted but not significantly, said Fu.
“Our marketing and distribution segment imports are mainly in US dollars. We do not hedge 100%. Therefore, the recent weakness of ringgit affects us to some extent,” he said.
“For exports, we have a natural hedge. For example, we export some products in US dollars and we also buy some products in US dollars. So, it’s somehow OK.
“But for local demand products, we have net foreign exchange (forex) exposure,” he said, adding that the company has an internal forex hedging policy that helps curb net exposure of its local business to forex costs.
EITA Resources’ 1QFY15 showed that earnings were already crimped, with net profit decreasing 19.4% to RM2.66 million, compared with RM3.3 million in 1QFY14. However, its revenue increased 8.25% to RM49.83 million, compared with RM46.04 million in 1QFY14.
Nevertheless, Fu said the company should still be able to chart a satisfactory full-year financial performance in FY15, due to its healthy order book of RM216 million as at Dec 1, 2014 — RM194 million from the lift division and RM19 million from bus duct systems.
Moving forward, EITA Resources is planning capacity expansion and it has allocated RM13 million for that over the next two years.
EITA Resources wants its manufacturing division to contribute 70% to its target of RM1 billion revenue by 2020.
The counter closed one sen higher at RM1.19 last Friday, giving it a market capitalisation of RM154.7 million.
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This article first appeared in The Edge Financial Daily, on April 20, 2015.