Investor Interest in Water Infrastructure to Pick up

The implementation of water infrastructure projects in Malaysia is expected to strengthen investor interest in pipe manufacturers.

According to Kenanga Research, water pipe makers are in a bright spot, as they stand to gain from an anticipated surge in demand. This follows the recent water tariff hikes that could strengthen the cash flows of water operators, allowing them to kick start their capital expenditure programmes, including non-revenue water reduction initiatives.

“This will be in addition to a significant allocation for pipe replacement programmes under the 12th Malaysia Plan,” the brokerage said in its report recently. Kenanga Research added that the increase in demand for water pipes would also be driven by the development of Sungai Rasau Water Supply Scheme Phase 2 in Selangor.

“We also see better margins as pipe makers will not be weighed down by high-cost steel inventory (which happens when steel prices are in a persistent downtrend) given that steel prices have bottomed out,” it said.

On that note, Kenanga Research favoured Engtex Group Bhd, citing the huge potential in the water pipe replacement market locally, the company’s dominant market position in both large-diametre mild steel (MS) pipes and ductile iron (DI) pipes, and its strong earnings visibility underpinned by significant order backlogs and a strong pipeline of new projects. Kenanga Research rated Engtex’s shares an “outperform”, with a target price of RM1.41 (USD0.30).