Engtex spurred by strong pipeline of new projects

PETALING JAYA: Engtex Group Bhd is a beneficiary of the water pipe replacement market in the country, given its dominant market position in large-diameter mild steel pipes and ductile iron pipes.

Kenanga Research said the company has strong earnings visibility underpinned by significant order backlogs and a strong pipeline of new projects.

“The sentiment towards water-related stocks has improved following the recent announcement by the National Water Services Commission of an average hike of 25 sen per cubic meter or 42% hike in water tariffs effective Feb 1, 2024 for domestic users.

“The hike will translate to strengthened cash flows for the water operators, allowing them to kick start their capital expenditure programmes in water infrastructure including non-revenue water (NRW) reduction initiatives,” it added.

It said a pick-up in pipe replacement orders would kick in by the second half of the year and accelerate into FY25.

“The tendering and funding process among Pengurusan Aset Air Bhd, water operators, and contractors typically takes at least six months to be finalised. Also helping is the stabilisation of product prices as steel prices bottom out,” the research house added.

It said Engtex would benefit from investments to reduce the national NRW from 36% in 2021 to 15% by 2049.

It is estimated that 70% to 75% of current NRW is attributed to leaks, pipe bursts and damaged fittings.

“We also maintain our target price of RM1.41 based on 0.8 times FY24 price to book value, which is in line with sector valuation during the last upcycle in 2014.

“This was triggered by the massive RM1bil Langat two water treatment plant with a capacity of 1,130 million litres per day following the completion of the Pahang-Selangor Raw Water Transfer project,” the research house added.

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