Engtex is a beneficiary of the country’s initiative to reduce non-revenue water from 34% in 2020 to 25% by 2025, says Kenanga.
PETALING JAYA: Engtex Group Bhd
, which is one of Malaysia’s largest pipe manufacturers, is well-positioned to benefit from the revival of water infrastructure projects.
According to Kenanga Research, the company is a beneficiary of the country’s initiative to reduce non-revenue water from 34% in 2020 to 25% by 2025.
The research house initiated coverage on Engtex yesterday with an “outperform” call and a target price of 77 sen per share.
“We like Engtex for the huge potential it has in the local water pipe replacement market, its dominant market positions in both large diameter mild steel (MS) pipes and ductile iron (DI) pipes, and its strong earnings visibility underpinned by significant order backlogs and a strong pipeline of new projects.
“We value Engtex at 77 sen based on the price-to-earnings ratio (PER) of seven times for the financial year of 2023, at a discount to the nine-times forward PER of peer Hiap Teck Venture Bhd, given the latter’s slightly smaller size,” Kenanga Research said in a note.
It pointed out that Engtex is the only maker of large-diameter MS pipes of up to three metres, used in upstream water supply projects.
The company is one of two producers of DI pipes locally, with the other manufacturer being Penang-based YLI Holdings Bhd. Highly corrosion resistant DI pipes are widely used in water distribution.
Year-to-date, Engtex has secured new contract wins of RM151mil from the Sungai Rasau Treatment Plant’s main contractors, namely, Gamuda Bhd (for Package 1) and Taliworks Corporation Bhd (for Packages 2 and 3).
Engtex’s outstanding order book is at RM285mil, of which DI pipes account for RM29mil, and MS or pilling pipes contribute RM256mil. Engtex’s potential tender bid stands at RM623mil.
Looking ahead, Kenanga Research expects the company’s order book to remain resilient.
This would be mainly driven by Engtex’s competitive advantage in large diameter pipe manufacturing and the country’s pipe replacement initiatives.
“Engtex has strategically located its business operations in major cities and will continue to expand its warehousing facilities in Selangor and Penang.
“The group is in the midst of building a 10-acre warehouse facility in Kapar, Selangor, at an estimated cost of RM29mil as part of the plan to consolidate all its fragmented warehouse facilities in Selangor.
“As such, margins are expected to improve as Engtex is able to reduce unutilised facilities and optimise its warehouse administration and management costs,” it said.
