Eita Resources Berhad (Business Segment)

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Eita group operates in three segments:

segments5y-revenue

*FY2013 trailing 4 quarters as a result of change in financial year end

^FY2016 consists only 3 quarters results announced till date

For the 5 years revenue breakdown, we can observe that there is a shift of revenue contributors in the group. Since FY 2013, the design & manufacturing segment has become the largest revenue source for the company due to their in-house brand recognition in the market. Also, the secure of MRT1 project allows their elevator segment to grow rapidly in FY2016. On the other hand, the group is also focusing on the service segment, providing them the recurring income to overcome the cyclical nature of property development business (this affects the contract of elevator system).

5y-pbt

*FY2013 trailing 4 quarters as a result of change in financial year end

^FY2016 consists only 3 quarters results announced till date

EITA’s profit before tax has been on an uptrend since FY 2012

The profit before tax for design & manufacturing is more volatile due to the foreign exchange difference. Their materials are mainly imported and hence they need a currency hedging contract. The change in FOREX rate in each quarter will cause unrealised and realised FOREX gain/loss.

Design & Manufacturing Segment

Elevator System

Elevator system is the group’s largest contributor. In 2002, Eita entered into technical collaboration agreement with Schneider Steuerungstechnik GmbH and manufactures its own elevators under the brand “EITA-Schneider”. Since 2000, the group has already installed more than 2500 units of elevators.  Today, EITA is the only Malaysian company capable of providing the full spectrum of elevator services, ie design, manufacturing, installation and maintenance.

Year Passenger Elevator Goods Elevator Escalator Travellator Dumbwaiter Total
2000 41 0 0 0 0 41
2001 13 0 0 0 0 13
2002 33 0 0 0 1 34
2003 50 0 14 2 1 67
2004 83 1 17 2 0 103
2005 110 2 2 0 0 114
2006 178 3 2 0 0 183
2007 121 2 0 0 2 125
2008 228 7 0 0 3 238
2009 186 7 8 2 0 203
2010 160 4 18 8 3 193
2011 159 0 16 0 0 175
2012 150 0 34 2 3 189
2013 166 0 34 0 2 202
Total 1678 26 145 16 15 1880

Cost Structure

Steel and aluminum make up 15% of elevator manufacturing costs. The global ferrous metals prices remain at the 5y low level although it shows a sign of recovering due to the China’s government effort to cut down production. Eita group imports most of their raw materials and equipment. Their cost is affected by the fluctuation of foreign currency exchange.

Business Model

The elevator segment operates based on competitive tender bidding. The chance to win an order relies on the ability of the manufacturer to tailor-make the elevator system to site requirements, services, products quality and reliability. Another important element is the track records the company has. Due to this reason, Eita presents some competitive advantage due to their track records in MRT1 project.

Prospect

Going forward, the elevator manufacturing segment will face some challenges such as the slowing down of property developments, increase in raw material costs and foreign currency exchange fluctuation. These, however, are offset by the increase in construction of infrastructure and big projects by government. As one of the providers for MRT1, EITA stands a better chance to win the MRT2 project. There are less competitors in MRT2 tender as the tenderers will be appointed by MRT; rather than the first round whereby it was open to all interested parties. (50 companies). Another thing to note is that MRT2 offers total contracts of RM 500m compared to RM 300m in MRT1. The urbanization in Malaysia also provides an opportunity for EITA to expand its business, even though they may have to charge lower price compared to well-known companies such as OTIS, Schneider, Kone, etc.

Bus-duct System

Bus-duct system is EITA second largest income contributor. EITA manufactures its own bus-duct under the brand “Furutec”. Furutec Electrical Sdn Bhd had been in technical collaboration with Furukawa for more than a decade-long. Hence they are able to utilize the stringent Japanese know-how and technology.

Business Model

EITA sells their bus-duct system through project-based and their own distributors.

Projects portfolio can be found on http://furutec.com.my/home/commercial/.

Prospect

The segment is expected to grow slowly but steadily as it depends on the construction sector. In near future the catalyst will be the higher quality and safety requirement of construction projects. Also, the increase in high-rise buildings may bring in more business to this segment. Hence in the future, bus-duct system should perform well. The risks, however, include the slowdown of property development, the pricing competition from other suppliers and

Marketing & Distribution Segment

EITA marketing & distribution segment distributes a wide range of E&E equipment and components for power distribution & control, IT network and security solutions. Their business associates and partners include Fuji Electric, Kyoritsu, Panasonic, General Electric, Larsen & Toubro, Bosch, TE Connectivity, Novaris and others.

Marketing & Distribution segment contributed 40.8% of the Group’s revenue in FY2015. EITA launched their co-owned PYROTEC brand of Fire-Resistant Cables in 2014, which started to contribute positively to the group’s bottom line.

The group is in progress of venturing into the regional market, especially Indonesia. They set up their representative office in Jakarta in September 2014. Since then, they are able to bring onboard business partners to expand their distribution reach.

Services Segment

Services segment involves in the provision of maintenance and repair services for their contracted EITA Elevator customers. As the segment is highly linked to the elevator system performance, we view it as positive over the next few years as they will be able to secure the repair and maintenance service for the MRT1 project.

Going forward, services segment should continue to provide them steady recurring income, with fewer uncertainties compared to the other 2 segments.

 

 

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