This article first appeared in The Edge Malaysia Weekly on October 8, 2018 - October 14, 2018

EITA Resources Bhd, the supplier of elevators and escalators to the Sungai Buloh-Kajang Mass Rapid Transit stations, could possibly be perceived as one of the victims of the government’s prudent policy to shelve mega infrastructure projects.

The government has decided to push the completion date for the Light Transit Rail 3 (LRT3) project from 2020 to 2024. As a result, Eita has to remove the RM195.1 million contract to supply 95 elevators and 220 escalators for the project from its order book.

On top of that, the government is finding ways to slash the cost of Mass Transit Rail 2 (MRT 2), on which works have already commenced, by half. There is talk that the government may want commuters to use the stairs, instead of escalators, in MRT stations.

Last year, Eita was awarded RM69.8 million worth of contracts to supply and install 30 lifts and 77 escalators for the elevated MRT2 stations, with work to start next year and to be completed by 2022.

However, group managing director Fu Wing Hoong seems unperturbed over the government’s decision.

According to him, there is no significant impact from the delay of the LRT3 project. As for MRT2, the company has yet to be notified of any changes.

“Even if — assuming that the [LRT 3] project doesn’t go through — we have to exclude LRT3’s contribution from our order book, Eita still has enough jobs to sustain itself for the next few years.

“We will still have good growth. I believe we shall be okay.

“For the next financial year, the challenges are there, but we also have many orders in hand, so we will focus on executing them. I’m not saying it means we will do excellently because there are uncertainties in the market, from the exchange rate to changes in government policy. But we have various revenue streams,” Fu tells The Edge, noting that FY2018 will be a “satisfactory one”.

As at June 30, Eita’s order book stood at RM484.75 million, comprising orders for elevators, bus ducts and maintenance services domestically and abroad. Excluding the RM195.1 million contact from LRT3, it leaves the company with about RM290 million, which Fu says is almost double its order book a year ago.

“To be honest, even this figure (last year’s order book of RM146.13 million) is not a total representation. As our order book typically reflects work that lasts more than a year, we do not factor in the smaller short-term jobs,” he says.

“Recently, we secured new orders to build a substation worth RM67.2 million in Sarawak. So, there is that as well.”

When Eita secured the supply contract to MRT1, Fu — the founder and controlling shareholder — had joked that it was durian runtuh for the company. Apart from the earnings boost, the contract became a stepping stone for it to secure more such contracts.

That said, he stresses that Eita is also serving the property market — where high-rise residential units seem to be the trend in cities — including the commercial building segment. This implies the future demand for elevators.

Eita has a variety of elevators that cater for different market segments, ranging from high-end condominiums to mid-priced apartments and affordable flats.

It is getting new orders constantly despite the prolonged slowdown in the domestic property market, Fu says. This partly explains why he is not overly perturbed, considering the uncertainties on the horizon.

Steady recurring income

Fu’s optimism is also because of the great growth potential of the company’s recurring income — something that few might have noticed.

“Even if our sales slump, it is not necessarily that our profit will drop as well,” he says, adding that Eita is also providing maintenance services to its customers. This segment is fast becoming a reliable income source.

“We are still in the early stages of growing our maintenance service portfolio. We service about 90% of all equipment that we deliver.”

As at Aug 31, Eita had secured contracts to service 2,814 lifts/escalators. On average, it charges about RM800 per month to service a unit. So, servicing 2,814 units implies potential earnings of more than RM25 million a year. This income stream will also grow as the company delivers more escalators and elevators.

Fu notes that the maintenance service division is generating a steady cash flow and helping to mitigate any shortfall of earnings from the manufacturing segment, which produces elevators, bus ducts and cables.

The manufacturing segment, which is the biggest revenue contributor, contributed 54% to the company’s revenue of RM270.68 million for the financial year ended Sept 30, 2017 (FY2017), while the marketing and distribution segment contributed 32% and the services division, the remaining 14%.

Substations to power future growth

Eita is known more as an elevator manufacturer. In 2016, it diversified into the building of power substations. Recently, it won an award to build a 132kV substation and undertake the extension of a 275kV substation in Bintulu, Sarawak.

“We ventured into this business in 2016 after acquiring a company, which at that time had a turnover of RM10 million. Today, it contributes RM30 million in turnover and we expect that to increase in the next few years,” Fu says.

Seeing it as a way to diversify, he believes this business will be a strong growth catalyst — there will always be demand for power substations as the country continues to develop.

“This year, we don’t have a government job, but we expect to maintain our turnover, supported partly by the substation business. Next year, we expect to execute more. As long as housing [and communities] continue to be developed, there will be a need for this,” he says.

“Also, substations need to be maintained, too, so we will have recurring income from there. We also participate in the tendering for maintenance and upgrading of substations.”

About 80% of Eita’s sales are generated domestically. However, the company intends to balance out the proportion and expects export growth to pick up in the future as orders grow. It exports to Asean nations and selected Middle Eastern countries.

“Our export market has not grown as much as we would like it to. Last year, we were still okay, but this year seems to be subdued, reflecting the general regional performance. We hope prospects will improve,” says Fu.

FY2017 was a bumper year for Eita. It posted a record high net profit of RM19.92 million, compared with RM15.64 million a year ago, despite a 6% drop in revenue to RM270.68 million. In view of the strong earnings, the company has declared a total dividend of five sen.

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