ENG may be another good long-term BUY

Background

ENG Teknologi Holdings Bhd ('ENG')'s core businesses can be divided into:
- the Data Storage Group that primarily focused into the Hard Disk Drive & Tape Back-up Drive industry; and
- the Industrial Product Group that focused into the electrical and electronics and industrial mechanical sectors.

Recent Financial Results

After declining for the last 4 quarters, ENG's top-line & bottom-line have finally rebounded. It reported a net profit of RM11.4 million on a turnover of RM106 million for Q2009 ended 30/6/2009. This compared favorably to the results for 1Q2009 where it reported a small loss of RM84k on a turnover of RM101 million. Compared to the previous corresponding quarter, net profit was up 45% while turnover was down 17%. The company attributed to improved performance to a leaner operation, which resulted in cost reduction. Other factors working in its favor are higher interest income (offsetting interest charges) & lower effective tax rate (due to certain income not subject to tax & incentives enjoyed by local subsidiaries.


Table 1: ENG's 8 quarterly results


Chart 1: ENG's 27 quarterly results

Valuation

If ENG can sustain its 2Q2009 results for the next few quarters, then its forward EPS could be as high as 38 sen (annualized EPS for 2Q2009). As such, ENG (clsoed at RM1.09 yesterday) could be trading at a forward PE of only 3 times. If we were to discount its EPS by 50%, the forward PE of 6 times is still reasonably attractive. Price to Book stood at 0.6 times.

Technical Outlook

ENG may have just broken above its long-term downtrend line at RM1.00-1.05.


Chart 2: ENG's weekly chart as at Aug 20, 2009 (Source: Quickcharts)

Conclusion

Based on a possible turnaround; fairly attractive valuation; and possible technical outlook, ENG may be a good stock for long-term investing.