Leading one-stop pipeline system provider. ENGTEX is a leading one-stop pipeline system provider in Malaysia, with strong exposure to the water & sewerage, infrastructure, and construction sectors. The group manufactures, wholesales, and distributes pipes, valves, fittings, plumbing, steel products, and construction materials. Notably, ENGTEX’s wide domestic distribution network and sizeable total output capacity of 480k MT p.a. encompasses various steel products and fittings, with its core focus on smaller diameter ductile iron (DI) pipes and larger diameter mild steel (MS) pipes.
Water pipe replacement demand to improve. The increase in water tariffs for domestic users in Peninsular Malaysia and Labuan, averaging 22 sen per cubic meter from Feb-24, is set to revitalize the water pipe replacement market. After years of stagnant tariffs across many states, underinvestment in water supply infrastructure has left the national Non-Revenue Water (NRW) rate at 37.2%. This tariff hike is expected to improve water operators' cash flow, leading to greater investment in infrastructure and boosting the demand for pipes. For instance, it will allow Air Selangor to advance the Sungai Rasau Water Treatment Plant project and upgrade pipes to reduce NRW, directly benefiting ENGTEX. With Malaysia targeting a nationwide NRW reduction to 20% by 2040, a growing number of water pipe replacement projects is expected in the coming years.
Others. In Budget 2025, the government allocated RM86bn in development expenditure (flat YoY), prioritizing the rollout of high-impact social infrastructure. Key water projects, such as the Sungai Perak Raw Water Transfer Scheme and the Machang water treatment plant, are expected to increase demand for ENGTEX’s water pipes. Meanwhile, growth in the construction sector should drive demand for ENGTEX’s wire mesh division – a steel reinforcement material that is widely used across construction sites. Furthermore, the rising influx of data centres into Malaysia strengthens the group’s demand outlook, as water supply is crucial for cooling systems in these facilities.
Poised for a rebound. ENGTEX is currently trading at a strong support level of RM0.60, with additional support at RM0.56 level. Coupled with improving indicators, ENGTEX may be set for a rebound toward RM0.66-0.69-0.73 region. Cut loss at RM0.52.
Collection range: RM0.56-0.60-0.62
Upside targets: RM0.66-0.69-0.73
Cut loss: RM0.52
Source: Hong Leong Investment Bank Research - 30 Oct 2024
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