Engtex looking into higher dividend
Funds for new investment will be reduced after achieving capacity target
AFTER a few years of heavy capital investments, pipe distributor Engtex Group Bhd may utilise cash freed up from reduced capital expenditure (capex) spending on its business and possibly reward shareholders with a higher dividend.
Over the last decade, Engtex has embarked on capacity expansion and established plants in Malaysia. For this, it has been earmarking RM30mil to RM50mil every year to increase its capacity.
The investing phase, while still ongoing, will be reduced as the company has more or less achieved the capacity it aimed for.
Under its property segment, Engtex will not be launching any properties following the completion of its Amanja serviced apartments in Sri Damansara, Kuala Lumpur this year. Over the past three years, a significant amount of capex was earmarked for its property developments.
Engtex is in the midst of receiving cash proceeds from the exercise of its warrants. Engtex has 133 million warrants which expired in October. Conversion of the warrants will raise RM110mil which can be used to reduce borrowing, expand production and perhaps reward shareholders.
Engtex currently has a gearing level of 0.8 times, and this will be reduced to 0.5 times should the proceeds be used to pare down borrowings. Salient points
“We have been habitually paying dividends, but around one sen per share. While we will always invest in our business to remain competitive, we are looking to reward loyal shareholders,” says its founder and managing director Datuk Ng Hook.
At its current price of RM1.17, the stock is yielding a return of 0.85%. It is only trading at a price earnings ratio of 6.55 times.
Engtex has six wire mesh plants, a ductile iron (DI) pipes plant in Gebeng, Kuantan, a mild steel (MS) concrete-lined pipes plant in Serendah, Selangor and a piling pipe plant in Kuantan.
Meanwhile, one new steel pipe plant in Kuantan and a new steel mill in Merlimau, Melaka will be operational next year.
“The nature of our business is such that for every RM1 we make, some RM7 in capital had to be put in. It is a capital intensive business but a necessity in our business if we want size. Today we have a wide distribution network and the ability to have a huge ready stock of pipes. You can call us the de-facto pipe supplier. We supply to pipe sub-contractors, state water authorities, government agencies and property developers in