Engtex’s 1Q2016 net profit gained 8.4% Y.o.Y, to RM14.7 mln on the back of higher average selling prices (ASP) of certain manufactured steel products and metalrelated trading products, which offsets the weak contribution from the property development segment. Revenue for the quarter, however, fell 14.7% Y.o.Y to RM261.4 mln. The results came slightly above our estimates as its net profit amounted to 28.2% of our forecast net profit of RM52.0 mln, while revenue fell slightly short, accounting to 21.0% of our total revenue forecast of RM1.24 bln.

For 1Q2016, the group’s wholesale and distribution segment’s pretax profit fell 15.2% Y.o.Y to RM11.0 mln due to softer market demand on certain metal-related trading products. The manufacturing segment’s pretax profit, however, improved 24.8% Y.o.Y to RM16.2 mln, owing to the higher selling ASP on certain steel products. The property development segment, meanwhile recorded a pretax loss of RM0.9 mln as oppose to a pretax profit of RM1.0 mln in the previous corresponding period, impacted by the high operational costs and slower property sales.

In our view, we think that the recovery in its manufacturing segment will be sustainable given that hot-rolled coil steel prices continue to trade at near one-year high. In 1Q2016, some 12 units of its 4-storey super-link housing project in Selayang remain unsold. Meanwhile, the  group’s net gearing stood at 0.9x and is within the management guidance of below 1.0x. HOLD, TP RM1.30.

Source: M+ Online Research - 31 Mar 2015