Bursa Malaysia Stock Price Target: ENG

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March 20, 2012

ENG (FV RM2.00 - BUY) Company Update: Revised Offer Price Still Appealing

Stock Name: ENG
Company Name: ENG TEKNOLOGI HOLDINGS BHD

Research House: OSK

Price Call: BUY

Target Price: 2.00

Engtek's boardannounced on Bursa that the financiers of TYK Capital SB have completed duediligence on the company and deemed the initial offer price of RM2.50/shareunjustifiable given the impact of last year's Thai floods on Engtek's operationsand financial position. Nonetheless, the financiers have agreed to back the privatizationat a revised RM2.00/share. We are now aligning our fair value to RM2.00,premised on 1.2x FY12 P/NTA, and think that this new privatization initiative may just materialize. Hence we upgradeour recommendation from SELL to BUY.

Still attractive atRM2.00/share. We find the newlytabled offer attractive since Engtek's operations were severely scarred by theThai floods. Compared to its peers underour coverage, the privatization offer price at 1.2x FY12 P/NTA represents a 37%discount to JCY's 1.9x FY12 P/NTA given Engtek's relatively smaller scale of operations,but is at 9% premium to Notion's 1.1x FY12 P/NTA, based on yesterday's closingprices respectively. On a standalone basis, the company historically traded ata 5-year average of 0.9x P/NTA, representing a 25% discount on the offer price.

Deal may just squeezethrough. We are of the viewthat the only hurdle that may scuttle the deal may be thenew condition requiring Engtek to have a net cash balance of not less thanRM20m as at 31 March 2012. Note that the cost of replacing the 400 damaged computer numericalcontrol (CNC) machineries amounted to RM90m and as at 31 Dec 2011, Engtek wassitting on net cash of RM42.1m. Assuming a conservative 50% insurance coverage,the company is looking to recover some RM45m from the loss of assets. Thus,this should bolster the company's net cash to RM87.1m, which would cover theasset replacement cost of RM90m. As for the RM23m shortfall in meeting the deal'snew requirement, we think that Engtek may be able to cough out this amount by executingmore cash transactions and shortening its sales outstanding collection period. Asat 31 Dec 2011, Engtek had inventory and receivables totaling RM131m.

Upgrade to BUY.We see Engtek's share price tracking closer to the offerprice of RM2.00/share. We advise thosewho own shares in the company to accept the new offer price as its valuation is stillattractive, or dispose of the shares should the market price get close to RM2.00/share. Hence, we are pegging our fair value at RM2.00, premisedon 1.2x FY12 P/NTA. Given the 13% upside to its last closing of RM1.77, we areupgrading our call from SELL to BUY. Note that our previous cautious stance wasin view of the potential of the entire exercise collapsing. With the latest revised offer, we are of the view that theprivatization initiative may just materialize.

Source: OSK188

March 13, 2012

ENG (FV RM1.52 - SELL) Corporate News Flash: Revises Offer Price

Stock Name: ENG
Company Name: ENG TEKNOLOGI HOLDINGS BHD

Research House: OSK

Price Call: SELL

Target Price: 1.52

THE BUZZ

An announcement was made on Bursa yesterday, stating that TYK Capital is still negotiatingwith its financiers to fund the privatization of Engtek. We understand that theoffer price will likely be adjusted to a value not exceeding RM2.00/share,instead of the earlier proposed RM2.50/share made prior to the Thai floods,depending on the outcome of the due diligence exercise scheduled to becompleted by 19 March.

OUR TAKE

Definitely below RM2.00/share or no go. In our 4QFY11results review note, we noted that Engtek posted a net loss of RM42.9m, arising from the recognition of asset impairmentsand write-offs amounting to RM45.6m. We also highlighted that the company islooking to replace 400 damaged computer numerical control (CNC) machines with300 new generation CNCs costing approximately RM90m, in order to restore itsproduction capacity back to pre-Thai flood levels (with half of the new machines already delivered). Thus, we believe that the revisionof the offer price to RM2.00/share orbelow is highly likely but the final price will be determined by TYK Capitalalong with its financiers.

Nod from majorshareholders? As PNB and LTH have a combined 23% equity interest in Engtek(held since early 2000), their decision on whether to accept the revised offer pricemay prove crucial in sealing the privatization deal. Based on our estimates, PNB and LTH's average costper share amounts to between RM1.40 and RM1.80. Assuming that the offer priceis now RM2.00/share, there is an upside of 10%-45% compared to 35%-75% based onthe previous offer of RM2.50/share. Given the scenario is as such, we think that there is still a high chance that both entities will givetheir consent, especially with the HDD segment now facing long-term headwinds arising from: (i) the proliferation of smartphones and tablets which hassapped the demand for PCs, and (ii) the slow but steady transitionto solid state drives (SSD) as theprimary medium of storage. However, any offer price below RM2.00/share coulddiscourage PNB and LTHfrom participating in the proposed privatization.

Downgrade to SELL.We are not making any changes to our fair value of RM1.52 on Engtek, premisedon 0.9x FY12 P/NTA, but we are downgrading our recommendation from NEUTRAL toSELL due to the fluidity of the situation. We advise investors to cash out fromEngtek as we see better trading opportunities for both Notion (TRADING BUY,FV:RM2.43) and JCY (TRADING BUY, FV: RM1.80) which have a better product mix andeconomies of scale respectively. Moreover, the potential new offer price ofRM2.00 for Engtek would only provide a rather limited upside potential of 12% from the current market price.Being a HDD component maker that isseverely affected by the Thai floods,Engtek's short- to long-term outlook is undoubtedly murky.

Source: OSK188

February 22, 2012

Neither Here Nor There

Stock Name: ENG
Company Name: ENG TEKNOLOGI HOLDINGS BHD

Research House: OSK

Price Call: HOLD

Target Price: 1.52

January 16, 2012

Awaiting An All-Clear Sign

Stock Name: ENG
Company Name: ENG TEKNOLOGI HOLDINGS BHD

Research House: OSK

Price Call: HOLD

Target Price: 1.52

November 21, 2011

Due Diligence Extended Again

Stock Name: ENG
Company Name: ENG TEKNOLOGI HOLDINGS BHD

Research House: OSK

Price Call: SELL

Target Price: 1.24

October 19, 2011

OSK Research maintains Sell on Eng Tek, FV RM1.24

Stock Name: ENG
Company Name: ENG TEKNOLOGI HOLDINGS BHD

Research House: OSK

Price Call: SELL

Target Price: 1.24

KUALA LUMPUR: OSK Research is maintaining its Sell call on Eng Teknologi at a revised fair value of RM1.24 based on 0.6 times FY12 price to net tangible asset, down from 0.7 times previously.

It said on Wednesday, Oct 19 that although the share price has retraced by some 15% since its last downgrade two days ago, it believes investors will turn even more cautious as the current flood in Thailand is not showing any signs of subsiding.

'We foresee further downside risks should the flood situation persist, which could compel the bankers of TYK Capital's privatisation offer to have second thoughts over the proposal,' it said.

On Tuesday, Engtek released an official statement on Bursa Malaysia regarding its Thailand operations amid existing floods in the Ayutthaya province.

The management has confirmed that operations in both its Rojana and Hi-Tech Industrial Park were suspended, while production in other facilities were also experiencing disruptions as their major customers in Thailand are situated in the flood-hit areas.

'The announcement did not come as a surprise as we highlighted previously that all five industrial estates in Ayutthaya have been confirmed to be inundated by water by the Thai army. Given the significant presence of most HDD component manufacturers within the flood-hit province, we continue to expect the negative developments to take its toll on the entire HDD component supply chain,' it said.

OSK Research said Thailand contributes 75% of Engtek's sales. With a total 400-500 CNCs installed, Engtek's two factories in the Ayutthaya province supply some 40% of its total production.

'While we believe management would attempt to mitigate any near-term production shortfall by increasing the production from its existing facilities in China, Philippines and Malaysia, we opine what is more of a concern here is that Thailand typically contributes 75% of its consolidated sales,' it said.

OSK Research said given the presence of almost all major HDD makers in the region, i.e. Western Digital, Seagate, Hitachi, and Toshiba.

The research house said due to the severity of the aftermath damage, the entire HDD supply chain is likely to be hit and we foresee downside risks not just on its Thai facilities but also its existing operations in the rest of the region. 'Restoration to pre-flood production level would depend largely on how fast all the HDD component manufacturers can shift their respective production out of Thailand in the immediate term and how soon the flood in Thailand would subside in the near term,' it pointed out.

OSK Research said due to the fluidity of the situation with all of the flood-hit industrial parks sealed off by the Thai army as a precaution, the magnitude of losses suffered remains unknown at this point of time.

'Although we make no changes to our forecasts for now, we foresee a difficult 4Q11 given the widespread aftermath impact. Should the monsoon rains subside by the end of this month, realignment or replacement of machineries will take at least another two to three months and hence, we expect production to normalise only by 2Q12 in our base case scenario,' it said.

October 17, 2011

Eng Tek at 3-month low after downgrade

Stock Name: ENG
Company Name: ENG TEKNOLOGI HOLDINGS BHD

Research House: OSK

Price Call: SELL

Target Price: 1.45

Eng Teknologi Holdings Bhd, a Malaysian electronic components maker, fell to a three-month low in Kuala Lumpur trading after its shares were downgraded to "sell" from "buy" at OSK Holdings Bhd.

The stock dropped 1.7 percent to RM1.77 at 9:07 a.m. local time, set for its lowest close since July 1.

Its fair value was cut to RM1.45 from RM2.50, OSK said in a report today, adding that flooding at Eng's Thai factory made it "even more cautious" about its privatization offer. -- Bloomberg

July 25, 2011

Eng Tek climbs after getting TYK offer

Stock Name: ENG
Company Name: ENG TEKNOLOGI HOLDINGS BHD

Research House: OSK

Price Call: HOLD

Target Price: 2.50

Eng Teknologi Holdings Bhd, a Malaysian electronic components maker, rose to its highest level in almost a year in Kuala Lumpur trading after receiving a buyout offer from TYK Capital Sdn Bhd at RM2.50 a share.

The stock climbed 1.8 per cent to RM2.32 at 9:06 a.m. local time, set for its highest close since July 28, 2010. -- Bloomberg