Engtex oh Engtex

Engtex on Kenanga Research’s radar on bright water sector outlook

KUALA LUMPUR: Kenanga Research is calling a Trading Buy on water pipes manufacturer Engtex Group Bhd, saying it’s a proxy to the robust water sector.

Fair valuation for the stock is set at RM1.59, an upside of 43 sen from Wednesday’s closing price of RM1.16.

“Being one of the top suppliers of water-related pipes in Malaysia, Engtex is poised to benefit from government spending on water infrastructure. The next big water project would be the proposed RM1.2bil Langat 2 treatment plant which requires about RM200mil worth of MS pipes.

“Interestingly, based on our channel checks, some of the shortlisted main contractors of the Langat 2 project are Engtex’s clienteles. Hence, we would not be surprised should Engtex secure mild steel pipes orders from this project,” Kenanga Research said.

The research house is also encouraged by the company’s performance in the first half of 2013. Revenue climbed 23% year-on-year, largely due to significant rise in manufacturing business. Profit Before Tax margin also improved from 6.7% to 7.4%, thanks to increased capacity utilisation.

“Furthermore, even though the tax expenses was higher in 1HFY13, net margin was sustained at 5.1%,” it noted.

According to Kenanga Research, although Engtex’s share price has risen significantly by 35% year-to-date, it is still trading at 22% discount to its five-year average price-earnings ratio (PER) of six times. Benchmarked against the PER of six times FY14E, the stock is valued at RM1.59.

“Despite being stuck in consolidation mode since mid-July, Engtex’s overall uptrend remains largely intact. A decisive breakout above RM1.20 would trigger renewed buying interest and propel it towards RM1.32 (R1) and RM1.48 (R2) next. Watch for a breakout,” it said.