KUALA LUMPUR (Aug 1): Shares of Engtex Group Bhd (KL:ENGTEX) climbed to its highest in over seven years, as CGS International flagged higher upside to the pipemaker stock price and earnings.

Engtex climbed as much as 16 sen or 14% to RM1.31, its highest since May 2017. The stock is trading at RM1.29 at 10.30am, giving the company a market capitalisation of RM573 million. The stock was also more active than usual with trading volume of 11.77 million shares, more than four times the 20-day moving average.

Engtex’s second quarter ended June 2024 (2QFY2024) is expected to show “strong” year-on-year growth due to a low base of comparison, and earnings in the second half of 2024 will likely be “even stronger,” said CGS.

CGS, one of only two research houses covering Engtex, upgraded the stock to “add” with higher target price (TP) of RM1.70. Kenanga Investment Bank Bhd (KL:KENANGA) has the stock on “outperform” with a TP of RM1.41. Both ratings are equivalent to a “buy” call.

Shares of Engtex have surged 72% so far this year, as earnings picked up following a sharp decline in FY2023. Investors are also betting on the revival of water-related projects following the recent tariff hikes, to boost demand for Engtex’s products.

“Nationwide pipe replacement cycle, rollout of local infrastructure projects and water supply schemes, and data centre buildouts are key re-rating catalysts,” CGS said.

The house anticipates an “accelerated” capital expenditure cycle for pipe replacement in the second half of 2024, citing the recent water tariff hike and Malaysia’s goal to reduce non-revenue water to 20% by 2030, under the Environmental Sustainability 2020-2030 Plan.

The government’s infrastructure projects are also expected to ramp up in the second half of 2024, potentially driving demand for Engtex’s mild steel pipes, CGS said. The increased construction activities would also drive demand for Engtex’s wire mesh, it said.

Engtex’s wire mesh division was the largest revenue contributor in its manufacturing segment at about 40% for FY2023, CGS noted. Engtex also offers exposure to data centres in Malaysia, having recently completed a RM7 million contract for a Johor data centre, it said.

All in all, CGS forecasts Engtex to quadruple its net profit to RM44.18 million in FY2024, from RM10.13 million in FY2023.