• Business profile: ENGTEX (listed in Aug 02) is one of the largest and leading integrated manufacturer and ‘one-s top’ dis tribution centre in Malays ia for pipes , valves, fittings (PVF), plumbing materials and steel products that specialize in total supply-chain solution provision for water supply, sewerage system, and construction industries.
• Its businesses are segregated into: 1) Wholesale and distribution (contributed 62% to 9MFY14 revenue); 2) Manufacture division (contributed 32% to revenue) and 3) Property division (contributed 6% to revenue) with ongoing residential and commercial development projects in Selayang, and the launching of a new property development project in Kepong.
• Opportunity in market selldown after 1:2 bonus issue ex on 5 Dec 14. ENGTEX share prices corrected 32% from a 52-week high of RM1.47 (Apr 2014) to a low of RM1.00 (15 Dec) before ending at RM1.07 on 5 Feb. At RM1.07, ENGTEX is grossly undervalued at trailing P/E multiple of 5.9x, about 52% discount to its peers .
• Patience will be rewarded. The amicable solution to the water impasse in Selangor State (which is expected by 1H15) could be a re-rating catalyst to ENGTEX, given that the long overdue cement asbestos pipes replacement for over 6000km in Klang Valley. This, together with over 40,000km of aged cement asbestos pipes in Malaysia would provide strong growth potential to ENGTEX earnings in the medium to long term amid Federal and Selangor governments ’ renewed non-revenue water (NRW) reduction drive.
• Hence, we believe share prices are likely to play catch-up in the medium to long term and current price weakness presents good buying opportunity as Tweezer bottom formation coupled with oversold oscillator could signal limited downside and potential reversal in trend.
• More upside if 10-d SMA near RM1.12 resistance is taken out decisively. A decisive breakout above RM1.12 will spur prices higher to RM1.17 and RM1.21 (50% FR) levels before heading towards our long term target prices at RM1.26 (61.8% FR).
• Immediate supports are RM1.03 (intraday low of 7 Nov & 2 Dec 2013) and RM1.00 psycological support. Cut loss below RM0.98.

Source: Hong Leong Investment Bank Research - 6 Feb 2015