This article first appeared in The Edge Financial Daily on December 14, 2018
Magni-Tech Industries Bhd
(Dec 13, RM4.25)
Maintain outperform with an unchanged target price (TP) of RM6.45: Magni-Tech Industries Bhd’s second quarter of financial year 2019 (2QFY19) revenue and core net profit grew marginally by 1.4% and 0.6% year-on-year (y-o-y) respectively. The slightly better performance was mainly lifted by higher sales orders received for both the garment and packaging segments. Historically, 2Q is relatively stronger than 1Q, but is still a seasonally weaker quarter which constitutes less than 25% of full-year earnings. Cumulative first half (1H) usually makes up only 40.7% of full-year earnings based on the past five years’ quarterly data. Hence, we deem the results as within our expectations at 40.6% of our full-year estimates. In line with its better performance, Magni-Tech declared a higher dividend per share of five sen for 3QFY19 (2QFY18: 4.5 sen), which comprises a three-sen second interim dividend and two-sen special dividend. We maintain our “outperform” call on Magni-Tech with an unchanged sum-of-parts-based TP of RM6.45.
Revenue in 2QFY19 grew by 1.4% y-o-y. Garment revenue, the group’s largest contributor, grew marginally by 0.3% y-o-y in 2QFY19 due to higher sales orders received. Likewise, packaging revenue increased by 10.4% y-o-y in 2QFY19 due to higher sales orders received.
Operating profit in 2QFY19 grew by 11.4% y-o-y. Garment’s operating profit grew by 8.3% y-o-y, mainly boosted by higher foreign exchange (forex) gains (RM2.8 million) as well as higher dividend income from money market unit trusts.
Meanwhile, the packaging division’s operating profit more than doubled to RM1.4 million (+>100%) due to higher revenue and higher gross margin. Overall, headline net profit grew 13.2% y-o-y mainly due to forex gain in 2QFY19. Stripping off the forex gain, core net profit grew marginally by 0.6% y-o-y.
To recap, new plant 1 has commenced operations since mid-March this year, while new plant 2 is currently under construction and is expected to commence operations in mid-2019
Slipping close to its 12-month low of RM3.96, the stock currently trades at 5.9 times calendar year 2019 forecast (CY19F) price-earnings ratio (PER) at core earnings level with a net cash position of RM230.4 million (RM1.42 a share, which represents 34% of its current market capitalisation) as at Oct 31 this year or only 3.9 times ex-cash PER. The undemanding valuation (4.6% downside risk to its 12-month low) and attractive dividend yield (FY20F: 5.2%) offers minimal risks for investors to ride on its earnings improvement. — PublicInvest Research, Dec 13