EMETALL: An Interesting Machinery & Equipment Manufacturer

Background

EONMETALL GROUP BHD ('EMETALL') is basically involved in the production of flat steel and flat steel products as well as steel machinery and equipment. The business activities may be grouped under Machinery & Equipment and Steel Product & Trading.


EMETALL's 2 Main Businesses

EMETALL has patented a new palm oil extraction plant known as solvent extraction plants ('SEP') which are used to extract residual oil from mesocarp fibre (here & here). Currently, the fibre are either thrown away or burned to generate steam in the mill. There are about 1350 mills in Malaysia and Indonesia which could be the potential buyers of the SEP. To make economic sense, the price of CPO must trade above RM2200. With CPO trading at about RM2600, the demand for SEP is expected to pick up.


Chart 1: CPO's daily chart as at June 6, 2016 (Source:http://ifs.marketcenter.com)

Historical Financial Performance

EMETALL's revenue dropped FY2013  & FY2014 due to lower demand for Steel Product & Trading and Machinery & Equipment segments. In FY2015, both segments enjoyed a rebound in revenue and profits due to improved demand.


Table 1: EMETALL's last 9 years' P&L 


Chart 2: EMETALL's last 9 years' P&L  

Recent Financial Results

EMETALL's revenue rebounded strongly due to higher revenue from the Machinery & Equipment segment.


Table 2: EMETALL's last 10 quarters' P&L  


Chart 3: EMETALL's last 10 quarters' P&L  


Table 3: EMETALL's segmental results

Financial Position

As at 31/3/2016, EMETALL's financial position is deemed satisfactory with current ratio at 1.7x and total liabilities to equity at 0.4x. Debtors' collection period was at 112 days while inventory holding period was at 220 days. The high inventory holding period may reflect the nature of its business where the conversion cycle may take a few months.

Valuation

EMETALL (will close at RM0.75 today) is now trading at a trailing PER of 7.5x (based on last 4 quarters' EPS of 10.38 sen). A this PER, EMETALL is deemed fairly valued for a small-cap stock.

Technical Outlook

EMETALL rallied strongly over the past 6 weeks after it broke above its irregular downward channel at RM0.40. Today, it broke above the resistance from its immediate horizontal line at RM0.70. Its next resistance will be at RM0.90, RM1.00 & RM1.10. A quick rally to the last top could mean a prolonged consolidation ahead. There is no point to rush into this stock if there is no meat left on the bone.


Chart 4: EMETALL's weekly chart as at June 6, 2016_11.00am (Source: Shareinvestor.com)


Chart 5: EMETALL's monthly chart as at June 6, 2016_11.00am (Source: Shareinvestor.com)

Conclusion

Based on improved financial performance, fair valuation and bullish technical outlook, EMETALL could be a good stock to consider for long-term investment. Good entry level is at RM0.70. 

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, EMETALL.