This article first appeared in The Edge Financial Daily, on January 4, 2016.

KUALA LUMPUR: Lift and bus duct manufacturer EITA Resources Bhd (EITA) is climbing on the bandwagon to diversify its earnings base, amid concerns that the country’s economy growth will remain sluggish this year.

Its group managing director and executive director Fu Wing Hoong said the group is scouting for expansion opportunities in the electrical and electronics (E&E) components section, which comes under its marketing and distribution division.

“It is a market that we are interested to enter. We hope to gain market share in the E&E sector through an acquisition,” he told The Edge Financial Daily in an interview.

As at Sept 30, 2015, EITA’s cash and cash equivalents stood at RM29.5 million.

Fu explained that while the group is operating in the E&E industry, there are still many sub-sectors where it can venture into.

He cited EITA’s proposed acquisition of Transsystem Continental Sdn Bhd (TCSB), which would give it access to the power distribution segment of the E&E industry.

“Currently, we are in the mid- and low-voltage market. With the acquisition, we are entering into the high-voltage market, which will turn EITA into a full-fledged player in the industry,” he added.

On Nov 25, 2015, EITA announced that it had entered into an investment agreement with TCSB to purchase 120,000 shares, representing 13.33% of the company’s issued capital, for RM300,000, as well as to subscribe for 1.05 million shares in TCSB for RM1.05 million.

TCSB will be a 60%-owned subsidiary of EITA upon completion of the acquisition. TCSB’s core business is related to the business of civil, electrical and general contractors.

The deal is expected to be finalised by the end of 2016.

Fu said EITA’s tie-up with TCSB would lift the latter’s profile in the power distribution market and help bolster its order book, which currently stands at RM215 million.

“It (TCSB) is not able to win jobs, partly because it is too small. It does not have financial muscle and even facilities to build because I think in our country today, the jobs are huge and they cannot afford to give it to small companies,” said Fu.

“EITA is in a better position to bid and win [projects] because we are more established in terms of financial strength,” he added.

Fu also said the group’s order book comprises mainly the manufacturing of lifts and bus ducts. However, half of its business, which constitutes the marketing and distribution division, is not captured by its order book.

Fu also sees the proposed acquisition providing EITA an opportunity to enter the power distribution segment and gain specialisation, which would raise the group’s profile and open the doors to other regional markets.

“We are looking for further joint ventures in Southeast Asia, as companies in our market compete on specialisation. We don’t have any specialisation [for now],” he said.

“So, once we enter the [power distribution segment], we will have the specialisation, know-how, human capital, ability and network to execute such a job,” he added.

Fu expects the proposed acquisition of TCSB to start contributing to the group’s revenue from financial year 2017 (FY17), which is timely for EITA as that is when its Mass Rapid Transit (MRT) contract is expected to end.

“It (TCSB acquisition) will definitely contribute to our top line and cushion effects from any downturn in the market,” he added.

Last year, EITA clinched a RM79 million contract to supply lifts and escalators for all underground stations of the Sungai Buloh-Kajang line of the MRT project.

Fu said the bulk of works in the MRT contract is expected to be carried out in FY16, and is expected to support the group’s top line amid the challenging market conditions.

He also said EITA will continue to adhere to its hedging policy in 2016, which is expected to shield the group from risks associated with a weaker ringgit.

The group saw net profit rise 53.9% for FY15 ended Sept 30, 2015, to RM19.57 million from RM12.72 million in FY14, on higher revenue from its manufacturing and service segments, and an unrealised foreign exchange gain of RM833,000.

Revenue for FY15 grew 8.1% to RM214.93 million, compared with RM198.91 million in FY14.

Meanwhile, the group’s core lift segment and its fire-resistant cable, Pyrotech, are expected to grow this year, with orders being made for EITA’s products in countries such as Myanmar, Vietnam, the Philippines and Indonesia.

Therefore, exports are expected to exceed the RM48 million recorded in FY15, said Fu.

He said the group is expected to chart satisfactory results next year. “We will definitely not be in the red next year.”

EITA’s core business is in the design, manufacturing, installation, commissioning and maintenance of lifts, escalators and travelators under the brand EITA-Schneider. The group entered into a technical collaboration agreement with Schneider Steuerungstechnik GmbH in 2002.

Under its wholly-owned subsidiary, Furutec Electrical Sdn Bhd, the group is involved in the design and manufacturing of bus duct systems and fabricated metal products.

EITA (fundamental: 2.4; valuation: 2.4) shares closed two sen or 1.39% higher at RM1.46 last Thursday, ahead of the long new year holiday weekend, bringing it a market capitalisation of RM189.8 million. The stock has been trading at between RM1.08 and RM1.59 in the past 52 weeks.

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