This article first appeared in The Edge Financial Daily on July 16, 2019

Eonmetall Group Bhd
(July 15, 37.5 sen)
Maintain buy with an unchanged fair value (FV) of 80 sen: Eonmetall Group Bhd, via a 24:41:35 joint venture (JV) with private companies Kapar Holding Sdn Bhd and Kapar Land Sdn Bhd, has submitted a winning bid for 421 acres (170.37ha) of land in Klang tendered out by Sime Darby Plantation Bhd at RM155.7 million or RM8.50 per sq ft. The land will subsequently be subdivided according to the parties’ equity stakes in the JV. As such, Eonmetall will be entitled to a 100-acre lot for RM37.1 million.

Eonmetall will use the land for future expansion of its operations, including a new warehouse, as its existing 60-acre land in Kawasan Perusahaan Valdor, Penang, is fully utilised. Other advantages of the land include its proximity to Port Klang, resulting in savings in logistics costs and better efficiency for its export business, and its proximity to several palm oil mills which could be potential buyers of its solvent oil extraction plants.

The acquisition will increase Eonmetall’s net debt and gearing of RM109 million and 0.64 times currently to RM146.6 million and 0.85 times respectively. At these levels, we believe Eonmetall will have limited headroom to gear up further. We maintained our forecasts, assuming the holding cost for the land is to be capitalised.

We still 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 — steel products and metalwork machinery — used in the fabrication of these plants.

Its solvent oil extraction plant business’ next phase of growth will be from the introduction of a concession model that is attractive to palm oil mill owners as it requires a minimal capital outlay from them, as Eonmetall will fund the construction cost of a solvent oil extraction plant in exchange for profit sharing. Eonmetall’s racking system business is also poised for tremendous growth underpinned by Constructor products. — AmInvestment Bank, July 15