EngTek ... July 2008

ENG Teknologi Holdings Bhd - Malaysia's largest hard disk drive (HDD) components manufacturer by revenue and one of the biggest in Southeast Asia - could be a privatisation target by private equity funds.

A major shareholder of Engtek feels its shares are undervalued and is willing to consider any offer to take the company private. As at the end of last financial year, Engtek's NTA (net tangible assets) stood at RM1.68 times. It is higher now (July 2008) but the share prices range from RM1.20 to RM1.30.

We keep an open mind if there are offers to enhance shareholder value," said Teh, who together with Datin Low Yeow Siang directly own 25.2 per cent of Engtek. Another major shareholder of Engtek - which made a net profit of RM14.8 million on turnover of RM500.6 million in 2007 - is Permodalan Nasional Bhd with a 15 per cent stake. However, Teh said he is unaware if a buyout offer is on the table.

The company's privatisation prospect was fuelled by several such deals involving key HDD components makers listed in Singapore since 2006. They included MMI and Brilliant, which were privatised by some of the world's largest private equity firms. Unisteel is the latest player to join the bandwagon, announcing its privatisation plan last month.

Going Forward …

Engtek is an ideal privatisation target given that it was now (July 2008) trading at a nearly 22 discount to its book value of RM1.68 per share as at March 31 2008.

In addition, the company is now (July 2008) also trading at FY08 PER (price earnings ratio) of 5.3 times even though its annualised first quarter net profit came in 42 per cent above our estimates.