Friday, February 10, 2017

Eonmetall : A Subdued 4QFY16 On The Cards Buy

Eonmetall : A Subdued 4QFY16 On The Cards     Buy

We cut our FY16F/17F/18F forecasts by 30%, 26% and 26% respectively, and FV by 26% to RM0.78 (from RM1.05) but maintain our BUY call, following a recent meeting with Eonmetall. Our FV is based on 8x revised FY17F EPS of 9.7sen, at a discount to the manufacturing sector’s average 1-year forward PE of 10-11x to reflect Eonmetall’s relatively small market capitalisation. Eonmetall guided for a subdued 4QFY16 largely due to: (1) a spike in prices of hot-rolled coil, the input in the production of cold-rolled coil in end-2016; (2) a higher-than-expected provision for 2016 staff bonus (on the back of a bumper year in terms of profit); (3) a negative adjustment to inventory following a recent stock-taking exercise; and (4) slower-than-expected progress billings from certain residual oil extraction plant maintenance/upgrading contracts.

Our downgrade of FY17F and FY18F forecasts is premised upon a new assumption that going forward, most of Eonmetall's residual oil extraction plant projects will be carried out on a build-operate-transfer (BOT) basis (vis-a-vis 100% outright sales to third parties previously). We now project Eonmetall's earnings to only more than double in FY16F (from more than triple previously) driven largely by residual oil extraction plant construction profits, and rise by 15.1% in FY17F and 9.9% in FY18F. We continue to like Eonmetall for its tremendous growth potential in the residual oil extraction segment, backed by: (1) its patents for the technology in Malaysia, Indonesia and India; (2) a huge addressable market for the technology in the region; and (3) high margins as it sources inputs for the residual oil extraction plant (steel products and metalwork machinery) internally.

Others :
Maxis : Outperformance from higher ARPU and lower marketing costs  Buy

Solution Engineering Holdings, Puncak Niaga Holdings, Fajarbaru Builder Group, UEM Sunrise

Thailand : Monetary policy to stay accommodative
India : Reducing the dependence on monetary policy
Malaysia : Export volume expected to improve
Philippines : 40% probability for a rate hike in 2H2017

Properties Sector : Perwaja aborts regularisation scheme
Oil & Gas Sector : O&G industry needs to continue investing in technology

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