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This article first appeared in The Edge Financial Daily on March 19, 2018

Magni-Tech Industries Bhd
(March 16, RM5.06)
Maintain outperform with an unchanged target price (TP) of RM6.40:
Magni-Tech Industries Bhd recorded higher third quarter of financial year 2018 (3QFY18) revenue of RM313.3 million (+8.4% year-on-year [y-o-y]; +24.2% quarter-on-quarter [q-o-q]), and core net profit (CNP) of RM33.6 million (+5.4% y-o-y; +51.9% q-o-q) respectively. The results were within our expectations at 77% of our full-year estimates, but above the consensus expectations at 83.8%. Its 3QFY18 performance showed an improvement after a weak first half, mainly driven by higher sales orders and improved profit margins. Its CNP margin improved by 1.8 percentage points y-o-y to 10.7% in 3QFY18.

Magni-Tech declared a higher dividend of seven sen for 3QFY18 (3QFY17: six sen), which included a three sen interim dividend and a four sen special dividend. We reiterate our “outperform” call on Magni-Tech with an unchanged TP of RM6.40, corresponding to a forward 10 times price-earnings ratio (PER) for calendar year 2018 forecast (CY18F) core earnings. We like Magni-Tech for its solid fundamentals (with a net cash position of RM173 million as at 3QFY18), undemanding valuation (currently trading at seven times CY18 PER at the core earnings level) and attractive dividend yield (FY19F: 4.3%).

Its 3QFY18 revenue grew by 8.4% y-o-y and 24.2% q-o-q, mainly driven by its garment division. Garment revenue increased by 10.9% y-o-y in 3QFY18 due to higher sales orders received. Packaging revenue was lower by 12.2% y-o-y in 3QFY18 due to the cessation of its offset printing packaging business in 4QFY17. Stripping off the revenue contribution from discontinued operations, revenue for the continuing packaging operations grew by 7.1% on higher orders.

Its 3QFY18 profit before tax (PBT) improved by 8.3% y-o-y and 60.6% q-o-q. Excluding the one-off offset printing packaging business closure cost of RM2.9 million incurred in 3QFY17, core PBT increased by only 1.1% y-o-y in 3QFY18. Garment PBT grew by 2.3% y-o-y in 3QFY18 mainly due to higher revenue and investment income, but was weighed down by a net foreign exchange loss in 3QFY18. Packaging PBT increased by 35.1% y-o-y in 3QFY18 due to the one-off closure cost incurred in 3QFY17. Packaging PBT of continuing operations dropped by 35.1% due to higher raw material costs and operating expenses incurred.

The group’s long-term prospects continue to be underpinned by the two new manufacturing facilities in Vietnam, potentially coming on stream in FY19. The group’s capital expenditure (capex) spent in the first nine months of FY18 was RM10.5 million, above its last five years’ full-year capex of RM3.2 million to RM7.8 million per annum. — PublicInvest Research, March 16

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