CIMB Research starts coverage of Eita with Add, target price of RM2.40

CIMB Research: "Eita

KUALA LUMPUR: CIMB Equities Research has initiated coverage of EITA Resources Bhd with an Add and target price of RM2.40, which is 45.5% above the last traded price of RM1.65.

Listed on the Main Board, Eita’s core business is the manufacture and installation of elevators, escalators and bus duct systems. Other businesses include distribution of electrical and electronics (E&E) components and service maintenance of elevators.

“Eita's current valuation is attractive at 2018F 8.3 times price-to-earnings, 43% discount to the small cap construction sector's 14.4 times. 

“As there are no listed companies in similar businesses, we value EITA at 2018 12 times P/E, 20% discount to the construction sector's 15 times target P/E - discount to reflect its small market cap and indirect exposure to the sector - deriving a RM2.40 TP. 

“Potential re-rating catalysts are securing the MRT 2 elevator job and strong export sales. Risks are failure to get the MRT elevator job and weak export sales,” it said.

CIMB Research said in just 10 years, Eita has transformed from being just a manufacturer into the leading domestic player in the elevator market, with 10% market share nationwide. 

This in an impressive achievement and an indication of management’s strength and experience as this market is competitive and dominated by top international brands. In the elevator infra market, EITA is considered the number one player after it secured the MRT job.

The completion of its existing MRT installation elevator project by mid-2017 should boost Eita’s track record, putting it in a strong position to secure more elevator jobs from projects like MRT 2 and LRT 3, which we expect to be awarded over the next few quarters. 

“We have not assumed any potential earnings from LRT 3 and MRT 2 jobs,” it said.

“We believe EITA’s elevator manufacturing business should also benefit from the constant flow of affordable condominium launches in the country over the next few years,” it said.

Property consultant Jones Lang Wotton has projected cumulative completed medium-cost condominiums in Klang Valley alone to rise from 300,000 units currently to 420,000 by 2020, a 120,000-unit or 40% increase. This is equivalent to a potential RM800mil elevator industry orderbook just in the Klang Valley alone.

CIMB Research pointed out that the CFY09/16 was the best year so far for EITA - it recorded RM24.8mil core net profit. 

“As it targets to complete the MRT job by mid-2017, we project a weaker FY9/17F core profit before an earnings recovery in FY9/18F, supported by expected higher exports and stronger earnings from TCSB (which it acquired in Jan 2016).

“EITA’s return on equity (ROE) is the highest among our small and mid-cap stock universe. ROE measures how well a company uses its resources to generate profits,” it said