Engtex Group Bhd (Engtex) reported stronger-than-expected second-quarter FY2026 earnings, driven by recovering steel demand, higher delivery volumes and lower production costs, according to Kenanga Research.
Excluding around RM4 million in exceptional items, Engtex’s 2QFY26 core net profit rose 60% quarter-on-quarter and 673% year-on-year to RM16 million.
This brought first-half FY2026 core earnings to RM25 million, representing 59% of Kenanga’s full-year forecast and 58% of consensus estimates.
Kenanga said the earnings beat was mainly driven by stronger-than-expected performance from Engtex’s manufacturing segment, which benefited from improving steel demand, higher deliveries and lower production costs.
The manufacturing segment’s EBITDA increased 28% quarter-on-quarter, supported by stronger demand and deliveries for non-water steel products, particularly electric resistance welded (ERW) pipes and steel bars.
The research house noted that these products had already shown improving momentum in the first quarter.
Meanwhile, EBITDA from the wholesale and distribution segment increased 8%, supported by better demand for valves, fittings, steel products and construction materials.
Engtex’s core net profit margin improved to 4% from 3% in the preceding quarter, which Kenanga attributed mainly to stronger demand for higher-margin ductile iron (DI) pipes.
However, the group’s operating cash flow turned negative in 1HFY26, primarily due to higher inventory levels as Engtex built up raw materials and trading stocks to support increased business activity.
On a year-on-year basis, 2QFY26 core net profit rose sharply from around RM0.3 million a year earlier, reflecting stronger demand, higher delivery volumes and lower production costs.
Earnings were also supported by a lower effective tax rate of around 28%, compared with 55% a year earlier.
Core net profit margin expanded to 4% from 1%, mainly due to the clearance of high-cost inventories.
Looking ahead, Kenanga expects earnings momentum to remain healthy in the coming quarters, supported by continued cost optimisation and a more favourable product mix towards higher-value-added steel products.
The research house also expects Engtex’s approximately RM2 billion tender book to progressively translate into order wins, supported by ongoing non-revenue water (NRW) reduction programmes and broader water infrastructure upgrades.
Rising water demand from data centre developments, particularly for cooling purposes, is also expected to accelerate water capacity expansion and pipe replacement requirements, supporting sustained demand for Engtex’s water piping products.
Following the stronger-than-expected margin recovery in 1HFY26, Kenanga raised its FY26F and FY27F earnings forecasts by 26% and 16%, respectively.
The upgrades reflect higher margin assumptions for Engtex’s steel and ductile iron pipe businesses.
Following the earnings revisions, Kenanga raised its target price for Engtex to RM0.59 from RM0.51, based on a 9 times FY27F price-to-earnings ratio.
The target price incorporates a 3% ESG premium, based on Kenanga’s three-star ESG rating for Engtex.
