Engtex to expect more water pipe orders after water tariff hikes
Industrial pipe supplier Engtex Group Bhd (Engtex) is set to see an increase of water pipe orders in the near to medium-term following the recent water tariff hike announcements.
To recap, the National Water Services Commission (SPAN) had announced back in Jan that water tariffs in Peninsular Malaysia and the Federal Territory of Labuan would be increased from Feb 1 onwards.
The water tariff rate hikes in each respective state differed but on average, domestic users were expected to pay an average of RM0.25 or 42 per cent more for each cubic metre of water.
According to SPAN, this would result in an average RM3 increase in domestic users’ monthly water bills.
In a recent company update report, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) guided the rate hikes would translate to strengthen cash flows for water operators and allow them to kick start their capital expenditure (capex) programmes in water infrastructure and nonrevenue water (NRW) reduction initiatives.
They pointed out that Engtex as the panel water pipe supplier for Pengurusan Aset Air Bhd (PaAB), Pengurusan Air Selangor (PAS) and Johor’s Ranhilll SAJ would be one of the main beneficiaries of this increased activity from water suppliers.
Kenanga Research is especially optimistic on NRW initiatives as they note that government targets to reduce the national NRW has been set to be reduced from the recorded 36 per cent in 2022 to 15 per cent by 2049.
“Also recall, it is estimated that 70 to 75 per cent of the current NRW is attributed to issues such as leaks, pipe bursts, and damaged fittings. And based on our estimate, a 1 per cent drop in NRW would cost roughly RM800 million,” the research arm opined.
Engtex itself has also estimated that there are over 6,292km of pipes are in urgent need for replacement in Selangor, which would translate to 350,000 metric tonnes of pipes with a cost of about RM1 billion.
Additionally, the research arm also pointed out that steel prices seem to have bottomed out and may stabilize at current levels. This is expected to bode well for Engtex and allow the group to register margin expansion moving forward.
While the rate hikes are expected to aid water companies, SPAN had stressed that the rate hikes were still insufficient to cover the actual cost of providing water supply services.
According to the government group, the actual cost of providing supply services is RM1.75 per cubic metre of water.