EONMETALL GROUP BHD
By AmInvestment Bank Buy (maintained) Fair value: 92 sen EONMETALL has recently entered into a strategic partnership with Gonvarri Material Handling AS, whereby Eonmetall has obtained the licensing rights to manufacture and distribute steel racking solutions under the product flagship of Constructor from Europe for an initial term of five years, with the option to renew for a further five years.
The strategic partnership allows both Gonvarri and Eonmetall to expand on their mutual plans to manufacture and distribute Constructor steel racking solutions across AsiaPacific on the basis of equal profit sharing.
Eonmetall will also be able to expand its product range and market presence in the Asia-Pacific by leveraging on the Constructor brand through Eonmetall’s newly-formed subsidiary Constructor Asia Sdn Bhd (CASB), which was incorporated in the fourth quarter of 2017.
CASB is expected to begin its operations by the second half of 2018 with an estimated annual revenue of RM40mil to RM60mil in FY18 to FY20 and a healthy mid-to-high teens earnings before interest, tax, depreciation and amortisation margins.
Meanwhile, Eonmetall will bear the full cost to set up the production facilities based on Gonvarri design and technology requirements, as well as technical expertise by Gonvarri for the steel racking production in accordance to Constructor’s quality standards prior to commencement of the production.
The estimated capex cost is less than RM2mil and will be funded internally by cash.
Based on the stipulated partnership agreement, Eonmetall will be granted three types of sales rights under the Constructor brand which are five-year irrevocable exclusive sales to the Asean region, Bangladesh and China, three-year conditional exclusive sales to all other Asian countries excluding the Asian part of Russia, and three-year non-exclusive sales to other parts of Asia, including Asia-Pacific.
The company remains upbeat about its FY18 earnings due to additional earnings from the newly formed subsidiary CASB, which is expected to commence its operation as early as the second half of 2018 with an estimated annual revenue of RM40mil.
The company is also currently in the final stage of negotiation with a public-listed company for the construction of several solvent oil extraction plants on a build-operate-transfer basis and expects to deliver the plants as early as the first half of FY18.
In addition, Eonmetall may secure additional two plants on an outright purchase basis which are expected to be delivered as early as the first half of FY18.
“We 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 in-sourcing of inputs (steel products and metalwork machinery) used in the fabrication of these plants,” said AmInvestment Bank.