We attended the company's post-result briefing recently and went away feeling neutral on the company's outlook in the short term. EITA Resources posted a better set of results in 2Q12 as compared to 1Q12 due to higher sales contribution from all its three business segments (manufacturing of elevators as well as Busduct, marketing and distribution of E&E components and maintenance contract services and sales repair). However, the slowdown in the manufacturing sector may affect the group in the next 3-6 months although it will still be able  to  ride on  the expected growth of 3.8% YoY  from the construction sector in CY12. We think that the group with its homegrown products and well strategised management will be able to take the company's business to a higher level.

EITA has a dividend payout policy of 30% of its NP. Based on our earnings estimates, we expect EITA to dish out 3.5sen and 4.1sen DPS for FY12 and FY13  respectively. These translate into yields of 4.9% and 5.7% respectively. We value EITA Resources at a TP of RM0.95 based on 6.9x PER - this being the FY13 average PER of small cap industrial stocks - over our FY13  EPS  forecast  of  13.7sen.  We  do  not  have  an  official coverage on the company, hence the 'Not Rated' rating.  

Snapshots of 2Q12 results. On a QoQ basis, EITA Resources posted an increase of 39.3% to RM56.1m and 22.6% to RM5.5m in its 2Q12 revenue and PBT respectively due to a better revenue contribution from all its three business segments, i.e. the manufacturing of elevators and Busducts (+64.7% QoQ), the marketing and distribution of E&E components (+21.5% QoQ) and services of maintenance contracts and repair sales (+32.8% QoQ). However, due to the oneoff listing expenses of RM1.08m,  the consolidated PBT of the group was lower at RM4.4m (from RM5.5m) in 2Q12. On a YoY basis, the group's 1H12 revenue increased by 29.9% to RM96.3m and its PBT by 21.2% to RM10.0m. 

Expecting 10%-20% YoY growth of earnings in FY12. Management expects a 10%-20% YoY growth in the bottom line (from RM12.7m in FY11), while the top line is expected to grow around 30% YoY.  However,  we  are  only  forecasting  a  15%  growth  in  revenue  as the group's manufacturing division could be affected by the slowdown in the global economy, especially  from the Eurozone in the next few months. Nonetheless, the management reckons that the resilient local construction sector should provide a certain degree of support to the group's growth. According to our in-house forecasts, the construction and manufacturing sectors are expected to grow by 3.8% and 4.4% in 2012 from 3.5% and 4.5% in 2011 respectively.

Order book mainly from the manufacturing of elevators. As of Jun 2012, the group has secured a RM101.4m order book with 75% of it from the manufacturing of elevators, 19% from the manufacturing of Busducts and 6% from maintenance services and repair sales. The elevator's order book is mainly from the domestic market at RM74.3m (such as from Kerjaya Hotel (RM7m), Glomac Damansara B (RM4m), Platinum (RM4m) and Tigaman Square (RM3m). Meanwhile, its Busduct's order book at RM13.6m is mainly from the overseas market (e.g. Singtel Phase 2, Singapore (RM6m), National Art Gallery (RM5m) and Tower 1263, Kuwait (RM1m).