Engtex Group Bhd was poised for more water pipe orders following the recent water tariff hike which would translate to strengthened cash flows for water operators, allowing them to kick start their capex programmes.
In a report today, Kenanga Research has raised the 52-week target price of the company to RM1.41, up from previous target of 77 sen. The counter was trading unchanged at RM1.05 at 10.10am today (Feb 13), its highest in the last five years.
In the report, Kenanga Research said it came away from a recent engagement with Engtex feeling upbeat on its prospects.
As panel water pipe suppliers of Pengurusan Aset Air Bhd (PAAB), Ranhill SAJ and Pengurusan Air Selangor (PAS), it said Engtex was poised for more orders ahead.
It said this followed the recent announcement by the National Water Services Commission (SPAN) of an average hike of RM0.25/m3 or about 42% hike in water tariffs effective Feb 1, 2024 for domestic users.
It said the hike translated to strengthened cash flows for these water operators, allowing them to kick start their capex programmes in water infrastructure including non-revenue water (NRW) reduction initiatives.
It noted that the government had targeted to reduce the national NRW from 36% in 2021 to 15% by 2049. It was estimated that 70%-75% of the current NRW was attributed to issues such as leaks, pipe bursts and damaged fittings.
"Based on our estimate, a 1% drop in NRW would cost roughly RM800m. Engtex estimated that there are pipes spanning over 6,292km in urgent need for replacement in Selangor, translating to 350k MT of pipes with a cost of about RM1 billion," it said.
It added that Engtex has revealed that as at November 2023, its order book stood at RM229 million (DI pipes: RM30 million, MS/pilling pipes: RM199 million), while its tender book was at RM720 million (DI pipes: RM63 million, MS/pilling pipes: RM657 million).
The report said Engtex believed steel prices have bottomed out and should at least stabilise at current levels.
"We understand that there are plans to divest its non-core assets. The proceeds could significantly reduce its current net debt and gearing of RM495 million and 0.62x as at end-3QFY23, respectively, and hence lower its finance costs," it said.
Engtex is a 'one-stop' distribution centre and integrated manufacturers in supplies for pipeline systems, infrastructure, and construction in Malaysia.
The Sungai Buloh-based company offers a wide range of products including pipes, valves, fittings, hardware, iron and steel products, and building/construction materials.
Its products are widely used by customers in plumbing, sewerage, and waterworks; mechanical and electrical engineering works such as fire-fighting system, HVAC/air- conditioning system; infrastructure projects; civil construction; electromechanical; disaster mitigation; industrial, commercial and general purpose.