PETALING JAYA: With a pipeline of potential projects set to boost its order book, CGS International Research (CGSI Research) has raised Engtex Group Bhd
’s earnings per share (EPS) for the financial year 2024 (FY24), FY25 and FY26.
The research firm also upgraded Engtex from a “hold” to “add” with a higher target price of RM1.70
The research firm said the upgrade reflected projections for higher utilisation of steel products and a better cost environment, which should widen gross profit margins for the manufacturer of steel pipes.
“We like Engtex as a proxy for the pipe replacement cycle in Malaysia.
“Our new RM1.70 target price implies FY25F price-to-book value of 0.8 times and price-earnings of 12.7 times which we view as undemanding given our forecast two-year EPS compound annual growth rate of 28% (for the FY24-FY26 period) and improving return on equity profile,” CGSI Research said in a note to clients.
The research firm said it anticipates an accelerated pipe replacement capital expenditure cycle in the second half of 2024 (2H24), driven by a water-tariff hike and Malaysia’s goal to reduce non-revenue water to 20% by 2030 under the Environmental Sustainability in Malaysia 2020-2030 Plan.
Additionally, the research house expects government infrastructure projects to ramp up in 2H24, which will require mild steel pipes, potentially driving demand for Engtex’s product.
Increased construction would also drive demand for wire mesh, which could boost Engtex’s wire mesh division – its largest revenue contributor in the manufacturing segment at about 40% for FY23.
“In our view, water supply projects in Malaysia including the Rasau water supply scheme, Langat 2 water treatment plant and the Perak-Penang water transfer scheme that utilise larger-diameter pipes, benefit Engtex and enhance margins.
“Engtex also offers exposure to data centres in Malaysia. It recently completed a RM7mil contract for a Johor data centre and we expect more contracts to follow given Johor’s positioning as a data centre hub in Asia Pacific.”
CGSI Research added that Engtex is also venturing into Sarawak, where it is building a pipe plant slated for completion in 2H26.
