• Vast opportunity from pipe replacement program. According to the National Water Services Commission (SPAN), Malays ia’s Non-Revenue Water (NRW) is at a chronic level of about 36% above the recommended level of 25% by the World Bank. Hence, an amicable solution to the water impasse in Selangor (the completion of sale and purchase agreement is expected to be fully fulfilled by mid Oct) could provide a boos t to ENGTEX’s earnings , given 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, as pipe-replacement stays high in the agenda amid Federal and Selangor governments ’ renewed NRW reduction drive.
• Undemanding valuations. At RM1.16, ENGTEX is trading at 6.3x FY16 P/E, 22% below its 10-year historical average P/E of 8.1x. We think such valuations have provided a sufficient margin of safety and cushion further share price decline.
• Strong horizontal breakout signals further upside towards RM1.27-1.35 zones. Yesterday, ENGTEX jumped 8.4% to RM1.16 and closed above multiple SMAs and horizontal resistance, on the back of heavy volume of 1.16m shares (190% higher against 1M average). The horizontal breakout is positive and could send prices higher in coming days , supported by bullish oscillators.
• Further upsides are targeted at RM1.22 (50% FR) and RM1.27 (horizontal breakout objective), with a long-term objective of RM1.35 (76.4% FR). Supports are pegged at RM1.10 (200-d SMA) and RM1.07 (weekly mid Bollinger band). Cut loss below RM1.05.

Source: Hong Leong Investment Bank Research - 18 Sep 2015