This article first appeared in The Edge Financial Daily on September 12, 2019
Magni-Tech Industries Bhd
(Sept 11, RM5.78)
Maintain outperform with an unchanged target price (TP) of RM6.60: Magni-Tech Industries Bhd posted a 19.6% year-on-year (y-o-y) revenue growth for the first quarter of its financial year 2020 (1QFY20), to RM327.3 million, while its net profit jumped 38.6% y-o-y to RM30.5 million, driven by higher sales orders received from the garment segment and better operational efficiencies.
Quarterly earnings were in line with our expectations, making up 26.4% of our earnings estimates. Magni-Tech declared a higher dividend per share of seven sen for 1QFY20 (1QFY19: five sen). Our sum-of-parts-based TP of RM6.60 is maintained and we reiterate our “outperform” call on Magni-Tech as we expect it to benefit from the ongoing US-China trade war due to diversion of US imports from China to Vietnam. The company’s net cash position remains healthy at RM225.8 million, or RM1.38 per share, while its dividend yield looks attractive at 3.9%.
Quarterly revenue rose 19.6% y-o-y. The garment segment’s revenue surged 22.4% y-o-y to RM302.8 million due to higher sales orders as a result of trade diversion from US customers. The garment segment remains the group’s largest revenue contributor, accounted for about 92.5% of total revenue. However, revenue for the packaging segment dropped 7.1% y-o-y to RM24.6 million due to lower sales orders.
Quarterly profit before tax (PBT) was up 38.2% y-o-y. The garment segment’s PBT rose 38.8% y-o-y, in tandem with the growth in sales and boosted by the lower operating expenses to revenue ratio due to better operational efficiency. The packaging division’s PBT also posted a commendable growth of 25.9% y-o-y on better gross margin, higher interest and dividend income.
We expect Magni-Tech to be one of the major beneficiaries from the ongoing US-China trade dispute whereby major US customers diverts its orders to Vietnam and other Asean garment manufacturers. We understand that the construction of Plant 2 was completed in March 2019 and is currently contributing positively to Magni-Tech’s business. The company has recruited more than 800 workers for the new plant. — PublicInvest Research, Sept 11