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Thursday, June 25, 2015

Engtex - Water of Life

Engtex Group Berhad (Engtex -5056) is embarked is journey as a hardware retail shop located in Jalan Ipoh back then during the 1980s. Riding on the huge and rapid development in Malaysia, Engtex had made tremendous progress from a hardware retail shop to a diversified multi million integrated wholesale and distribution center with it's own warehousing and distribution network system across the globe. Today, Engtex had set it foot on being a one stop solution provider for pipes, valves, and fittings in Malaysia.

While Engtex had been doing great in it's current operation, the group had started to seek for a diversified stream of revenue by embarking into the real estate and hospitality. How could this make a change in Engtex coming future?

Engtex had been trading at the range of RM 1.00 to RM 1.10 for the past 6 months. This could be due to the local weaker market sentiment from a strings of foreign selling. However, the consolidation period had been seen with catchy accumulation from the directors, as well as company share buy back at the range of RM 1.00.

On a technical outlook, Engtex could be on it's path to an uptrend after seeing a slew of accumulation in the month of May, with MA20 crossing MA50 with the price sustaining at the higher level. A good convincing break above the psychological resistant of RM 1.10 could mark a good uptrend for Engtex to a new journey towards RM 1.25. The Bollinger Band had indicated a long good squeeze since early of January 2015, and a break above the current upper band at RM 1.12 should be a good indicator to signal for a strong uptrend in the coming days.

Engtex - When Water Matters

Engtex had been seen as one of the major beneficiary from the restructuring of water concession in Selangor. However, the prolonged deal which had been politicized had resulted in mounting criticism from the public and even to the ruler of Selangor. The matter need to be resolved as Selangor could be at a stake of running in water supply problem come 2017 because of the delayed implementation of the projects.

With Puncak, KPS, Jaks and Salcon showing a strong signs of volume spikes, the long awaited restructuring could be finally going to see a conclusion as mounting pressure continue to pile up the lawmakers into putting the benefits of the public first.

According to close sources, the water restructuring exercise will be looking to see a conclusion on the 3rd Quarter of 2015.

Engtex will be one of the major beneficiaries from the completion of the water restructuring exercise, in which the Selangor State and Federal Government are currently wrestling on locked horns. The old and aging asbestos cement pipe replacement exercise that sees 6,000 km in the Klang Valley, and more than 40,000km in the whole Malaysia is a tremendous strong growing opportunity for Engtex.

More than Just a Water Deal

Engtex started off with the distribution of hardware supplies. Currently, the group had became a leading pipe and valve manufacturer in Malaysia, with global distribution network. However, the group had started to tap into new stream of income with is more than just a matter of water - real estate development and hospitality.

While Engtex is still a new comer in the property scene, it had started in a rather smaller scale for a good exposure of experience with launches in Selayang and Kepong. With the experience, the group will continue to develop their new land bank in stages.

One of their interesting land bank will be the freehold land at Mukim Cheras, which the group had just bought last year at the price of RM 16.6 million.

Engtex will also be starting to see it's hospitality division bringing in revenue soon with the completion of their hotel at Bandar Sri Damansara, Lebuh Pasar Kuala Lumpur and Selayang. The trio will be slated to see completion at the 2H of 2015, with a total capacity of 337 lettable rooms.

The group will also be looking to add approximate 415 rooms in their profile from the freehold land in Jalan Ampang which is located at Kuala Lumpur, and Sungai Karang, Kuatan.

The hospitality division will be believed to contribute a consistent stream of revenue to the group in the future.

Fundamental Outlook

Engtex revenue had been increasing gradually for the past 5 years. From a total revenue of RM 680.1 million at year 2010, Engtex revenue had soared up to RM 1,178.3 million for FYE 2014.

Based on the 5 years historical revenue figures, Engtex 5 year average annual revenue growth rate is 11.62%.

According to projection, Engtex will be looking to break above a total revenue of RM 1.3 billion for FYE 2015 based on it's consistent growth.

As of the latest quarterly, Engtex had managed a profit of RM 13.515 million behind the revenue of  RM 306.385 million. With the continuous demand from the construction sector and the start of the new plant in Pahang in 2nd Quarter 2015, Engtex will continue to show strong earning in the coming quarters. Based on average EPS of 4 cents +/- per quarter for FYE 2015, Engtex can be looking to see a total EPS of 16 cents for FYE 2015, which is translating to RM 1.60 valued with PER x10.

At the current price of RM 1.09, it is currently trading at 70% value from it's NTA of RM 1.54, and valued at PER x6.8 should full year EPS forecast of 16 cents materialized.

Engtex NTA could be ranged higher as they had a siginificant portion of undervalued / not revalued land and building since 1990s.

Engtex will be an interesting growth company to be vested into based on
- More than 6,000km aging water pipes in Klang Valley and more than 40,000km aging water pipes in Malaysia that need to be replaced.
- Strong construction growth in Malaysia, stemming higher demand in pipes and steel
- Diversified stream of income from hospitality to kick in
- Factory in Pahang to start operation in 2nd Quarter 2015.
- Trading at 70% value from NTA of RM 1.54 with huge undervalue / not revalued land and building since 1990s
- Strong growing EPS, projection of 16 cents for FYE 2015, value at RM 1.60 at PER x10.

Bone's TP : RM 1.50

Cheers and have a nice day


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