JF APEX SECURITIES BERHAD

(47680-X)

Results Update 23 June 2020

Engtex Bhd BUY
Strong turnaround Upgraded
Share Price RM0.53 Results
Target Price RM0.66
Stock Data  Above street’s estimates. Engtex posted a 1QFY20 net profit
Bursa / Bloomberg code 5056 / ENGT MK of RM2.4m, which is well above ours and consensus estimates
Market / Board Main / Industrial respectively.
Issued shares (m) 437.82  Cheerful YoY – Engtex’s 1Q20 net profit bounced to RM2.4m
Market cap RM232.04m
from RM0.1m in 1Q19 despite lower revenue achieved (-11%
Par value RM0.50
52-week price Range RM0.46 – 0.87 YoY) on the back of lower cost of sales (-14% YoY). Gross
Beta (against KLCI) 0.58 profit margin improved marginally to 13% from 11% a year
3-m Average Daily Volume 1.18m ago. The Group’s profit before tax improved to RM4.7m
3-m Average Daily Value^ RM0.71m (+136%) YoY from RM2.0m in 1Q19, lifted by lower finance
cost of RM5.3m (-5% YoY) and intact operating expenses
Share Performance RM23.3m (-1% YoY).
1m 3m 12m
 Better QoQ – The Group recorded a lower quarterly revenue
Absolute (%) -14.5 1.9 -26.9
Relative (%-pts) -18.7 -16.9 -18.6 to RM243.5m (-16% QoQ). The lower revenue happened across
all the segments, from Property Development (-61% QoQ),
Major Shareholders % Wholesale & Distribution (-10% QoQ), Manufacturing (-23%
DATO’ NG HOOK 21.43 QoQ), and Hospitality (-44% QoQ). However, 1Q20 profit
NG BENG HOO 7.80 before tax posted a commendable result of RM2.9m (+61%
TOH SU SEE 6.51 QoQ) thanks to lower cost of sales (-20% QoQ) and lower
Estimated free float 33.48 operating expenses (-6% QoQ). Hence, net profit increased to
Source: Bloomberg RM2.4m (+178% QoQ).
0.90 Comment
0.85
0.80
 Commendable cost-cutting measure. Engtex has put hard
0.75
0.70 efforts to pare down operating cost where operating margin
0.65 improved (+2.0 ppts) QoQ and YoY respectively. Moving
forward, the Group plans to cease new property launch due to
0.60
0.55
0.50 its gloomy outlook in local property market. Together with
0.45
shutting down of Ibis Style hotel located in Bandar Sri
0.40
Damansara, we deem the Group’s operating costs could go
down even further in the coming quarters.
Research Team  Disposing non-core assets. With the underlying hotel assets
03-87361118, ext. 754 amounting to RM93m which are planned for sales, this will help
chhow@jfapex.com.my Engtex to raise cash as well as diversify from non-core
business. The move is favourable because the unforeseeable
outlook of tourism sector will increase the Group’s uncertainty
in the future.
 Solid orderbook. Engtex is currently holding RM150m
orderbook which provides earnings visibility for the next 2
financial years. The Group is now tendering RM500m contracts.
We feel confident that Engtex could at least achieve a success
rate of 40% which would replenish its existing orderbook
substantially amid slowing down in economy.
Valuation & Recommendation
 Despite several cost cutting measures have been done, we
deem the impact of COVID-19 is yet to reflect in the current

Please read carefully the important disclosures at end of this publication

23 June 2020 Results Update – Engtex Bhd JF APEX SECURITIES

economic situation and its financial results. Therefore, we

maintain our FY20F net profit of RM6.6m.
 We are upgrading our recommendation from HOLD to
BUY with an unchanged target price of RM0.66, which is
based on 0.4X FY20F P/B. The preemptive action and strategy
realignment taken by the Group is praiseworthy. Also, we
believe Engtex’s sturdy balance sheet (0.57x net gearing) is
able to withstand prevailing economic storm.

Quarterly performance (RM million)

YEAR END DEC 1Q20 1Q19 YoY 4Q19 QoQ

Wholesale & distribution 151.9 162.0 -6% 168.6 -10%
Manufacturing 88.1 107.8 -18% 114.1 -23%
Property development 2.0 2.4 -17% 5.0 -61%
Hospitality 1.5 2.1 -27% 2.7 -44%
Revenue 243.5 274.2 -11% 288.8 -16%
Cost of Sales (211.40) (244.7) -14% (262.9) -20%
Gross profit 32.1 29.5 9% 27.6 16%
Other operating income 1.2 1.5 -22% 5.6 -79%
Operating expenses (23.3) (23.5) -1% (24.8) -6%
Finance cost (5.3) (5.6) -5% (5.4) -2%
PBT 4.7 2.0 136% 2.9 61%
Tax (2.4) (1.8) -31% (6.3) 62%
PAT 2.27 0.15 1466% -3.4 167%
Minority interest -0.1 0.0 -844% 0.3 -145%
Net profit 2.4 0.1 1793% -3.1 178%

Gross margin 13% 11% 10%

Operating margin 7% 5% 5%
PBT margin 2% 1% 1%
Net profit margin 1% 0% -1.1%
Tax rate 51% 93% -217%

OPERATING PROFIT
Wholesale & distribution 9.5 10.9 -13% 10.6 -11%
Manufacturing 7.5 3.8 97% 4.2 81%
Property development -0.1 -0.2 58% 0.1 -259%
Hospitality -1.0 -0.6 -67% -0.2 405%
TOTAL 15.9 13.9 15% 14.6 9%

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23 June 2020 Results Update – Engtex Bhd JF APEX SECURITIES

Income Statement (RM million)

Year end Dec 2016 2017 2018 2019 2020F 2021F

Wholesale & Distribution 536.0 502.0 690.6 656.1 688.9 671.8

Manufacturing 503.0 566.0 498.8 444.5 499.7 455.5
Property Dev & Hospitality 35.0 40.0 18.5 24.3 10 11.39
Revenue 1,074.3 1,108.0 1,208.0 1,118.90 1,198.60 1,138.67

Cost of Goods Sold (875.0) (923.8) (1,062.9) (989.90) (1,054.80) (1,007.72)

Gross Profit 199.3 184.2 145.1 117.8 143.8 130.9

Depreciation Manufacturer (19.1) - -24.2 -24.7 -23.4
Other Operating Income 7.4 18.3 7.7 5.6 6 11.4
Other Operating Expenses (6.4) - - -14 -
Sales, General &Administration Overheads (72.7) (96.0) (98.9) -95.6 -98.9 -96.79

EBIT 108.6 106.5 54.0 58.9 50.9 45.55

Interest Expense (22.9) (24.2) (31.6) -32.5 -29 -22.77
Interest Income 1.3 -
Other Financial Income - - - - -
Profit after Financial Items 87.0 82.3 22.4 26.4 21.9 22.8
Exceptional Expense - - - - -
Profit before Tax 87.0 82.3 22.4 11.9 21.9 22.8
Tax (25.4) (25.6) (10.3) -13.1 -15.3 -15.0
Profit after Tax 61.6 56.7 12.1 -1.2 6.6 7.7
Minority Interest (2.4) (1.5) - - -

Profit after Tax and Minority Interest 59.2 55.2 12.1 -1.2 6.6 7.7
Dividends (2.3) (2.8) (1.0) (2.5)

Retained Profit for the Year 57.0 55.2 12.1 0.0 5.6 5.2

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 23 June 2020 Results Update – Engtex Bhd JF APEX SECURITIES

JF APEX SECURITIES BERHAD – CONTACT LIST

JF APEX SECURITIES BHD DEALING TEAM RESEARCH TEAM

Head Office: Head Office: Head Office:

6th Floor, Menara Apex Kong Ming Ming (ext 3237) Lee Chung Cheng (ext 758)
Off Jalan Semenyih Shirley Chang (ext 3211) Lee Cherng Wee (ext 759)
Bukit Mewah Norisam Bojo (ext 3233) How Chi Hoong (ext 754)
43000 Kajang Nursuhaiza Binti Hashim (ext 752)
Selangor Darul Ehsan
Malaysia Institutional Dealing Team:
General Line: (603) 8736 1118 Zairul Azman (ext 746)
Facsimile: (603) 8737 4532 NurNadia (ext 741)
Ahmad Mansor (ext 744)
PJ Office:
15th Floor, Menara Choy Fook On
No. 1B, Jalan Yong Shook Lin PJ Office:
46050 Petaling Jaya Mervyn Wong (ext 363)
Selangor Darul Ehsan Azfar Bin Abdul Aziz (Ext 822)
Malaysia Tan Heng Cheong (Ext 111)
General Line: (603) 7620 1118
Facsimile: (603) 7620 6388

JF APEX SECURITIES - RESEARCH RECOMMENDATION FRAMEWORK

STOCK RECOMMENDATIONS
BUY : The stock’s total returns* are expected to exceed 10% within the next 12 months.
HOLD : The stock’s total returns* are expected to be within +10% to – 10% within the next 12 months.
SELL : The stock’s total returns* are expected to be below -10% within the next 12 months.
TRADING BUY : The stock’s total returns* are expected to exceed 10% within the next 3 months.
TRADING SELL : The stock’s total returns* are expected to be below -10% within the next 3 months.
SECTOR RECOMMENDATIONS
OVERWEIGHT : The industry as defined by the analyst is expected to exceed 10% within the next 12 months.
MARKETWEIGHT : The industry as defined by the analyst is expected to be within +10% to – 10% within the next 12 months.
UNDERWEIGHT : The industry as defined by the analyst, is expected to be below -10% within the next 12 months.
*capital gain + dividend yield

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