Analysts positive on Eita’s growth story on strong sector
KUCHING: Eita Resources Bhd’s (Eita) growth story has been viewed positively and analysts expect the group to continue its strong growth through the robust construction industry.
In a report, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) highlighted that the group has a strong core net profit growth.
“As the group imports majority of its elevators equipment and parts from China for local assembly and installation, the group has a hedging policy to lock in the rates as soon as a project is clinched, which has somewhat distorted its earnings growth.
“Stripping off the foreign exchange (forex) impact, the first nine months of 2016 (9M16) core net profit of RM19 million surpassed the financial year 2015 (FY15) core net profit of RM13.6 million (140 per cent) thanks to the MRT1led impetus (circa RM52 million recognised in 9M16 revenue).
“We are projecting core net profit of RM23.3 million in FY16 and RM20.3 million in FY17 as the growth moderates from high base post lumpy recognition from MRT1,” it explained.
It also pointed out that Eita has delivered more than 2,500 elevator systems to projects ranging from residential, commercial, industry, institutional buildings to public amenities.
“Notably, the group secured RM94 million worth of contracts in MRT1 and its outstanding order book stood at RM107 million (1.6folds of FY15 segmental revenue) as of 9M16 which will provide near-term earnings visibility,” the research team added.
Moving forward, Kenanga Research believed that the group can secure more major contracts, particularly in MRT2 (offers total contracts of RM500 million vs MRT1 of RM300 million) in view of its proven track record and established in-house brand name.
Besides elevator, Eita’s manufacturing division also offers growth potential in E&E products, the research team noted.
“We understand that the in-house bus-ducts system and fire-resistant cable products have gathered encouraging sales momentum with rising demand.
“Segmental gross margin expanded by 2.6 percentage points in 9M16 which was attributable to more favourable product mix and lower copper prices (down 14 per cent year to date).
“Moving forward, we expect the margin uptrend to sustain in view of the strong distribution channel and rising demand of in-house electrical and electronics (E&E) products on the back of higher safety and quality requirements of construction projects,” it added.
Overall, the research team pegged a ‘trading buy’ rating on the stock. It said, “We like Eita for its established in-house brand in elevators, busduct system and cables, which will allow the company to tap into the robust construction sector.
“In view of its successful transformationintomanufacturing, we think that its valuation is modest and thus provides opportunity for investors seeking exposure in the construction sector.”