Engtex Group is poised for significant growth with a robust pipeline of projects expected to boost its order book. According to reports by CGS International Stock Broking House (CGS), the company is set to benefit from a nationwide pipe replacement cycle, local infrastructure projects, water supply schemes, and data centre buildouts. The upcoming ventures and favourable conditions are expected to drive higher utilisation of steel products and improve gross profit margins.
CGS has upgraded its rating on Engtex from Hold to Add, with a revised target price (TP) of RM1.70. This new TP is based on a higher forecast for the company's earnings per share (EPS) for Fiscal Years 2024 to 2026 (FY24F-26F), reflecting anticipated improvements in both the cost environment and project execution. The bank's upgraded outlook is supported by expected growth in the pipe replacement market, government infrastructure spending, and the expansion into new markets such as Sarawak.
The anticipated pipe replacement capex cycle, driven by the recent water tariff hike and Malaysia's goal to reduce non-revenue water (NRW) to 20% by 2030, is expected to accelerate demand for Engtex's products in the latter half of 2024. Additionally, the revival of government infrastructure projects is set to increase demand for mild steel pipes and wire mesh, further benefiting the company. Engtex is also capitalising on opportunities in the data centre sector and is expanding its operations in Sarawak with a new pipe manufacturing plant slated for completion in 2H26F.
Engtex demonstrated strong performance in 1Q24, with its gross profit margin rising to 12% from 10% year-on-year (YoY) and net profit increasing by 150% YoY. The company's tender book stood at RM403 million as of June 2024, with an RM80 million backlog from Taliworks expected to contribute to FY24 revenue. The company also announced a 3-for-4 bonus issue to improve trading liquidity.
CGS's upgrade and revised TP highlight the company's growth potential and attractiveness in the current market environment.