Engtex RM150mil order book provides earnings visibility

JF Apex Securities said said Engtex has pared down operating costs resulting in improvements in operating margin.

PETALING JAYA: Engtex Bhd has an order book of over RM150mil that provides earnings visibility for the next two financial years.

The group has also tendered for contracts worth RM500mil and JF Apex Securities Bhd believes the success rate could be about 40%. That would help replenish its existing order book substantially amid the slowing down in the economy.

The research house said Engtex has pared down operating costs resulting in improvements in operating margin.

“Moving forward, the group plans to cease new property launches due to the gloomy outlook of the local property market.

“Together with the shutting down of Ibis Style hotel located in Bandar Sri Damansara, we deem the group’s operating costs could go down even further in the coming quarters, ’’ JF Apex said.

It added that the hotel asset disposal could raise RM93mil and that would help the group with cash and allow it to diversify from its non-core business.

The move to dispose of the hotel is favourable due to the uncertain times of the tourism sector, the research house said.

Engtex posted a net profit of RM2.4mil for the first quarter of 2020. However, revenue was lower across its divisions.

The research house said despite several cost-cutting measures made, the full impact of the Covid-19 pandemic has yet to be reflected. It has upgraded its call to a “buy” with an unchanged target price of 66 sen per share.

“The preemptive action and strategy realignment taken by the group is praiseworthy. We believe Engtex’s sturdy balance sheet (0.57 times net gearing) is able to withstand the prevailing economic storm, ” JF Apex said.

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