This article first appeared in The Edge Financial Daily on June 25, 2019
Magni-Tech Industries Bhd
(June 24, RM4.90)
Maintain outperform with a higher target price (TP) of RM6.60: Magni-Tech Industries Bhd recorded a better revenue of RM234.6 million or +6.4% year-on-year (y-o-y) for the fourth quarter of financial year 2019 (4QFY19). Despite the higher revenue, its core net profit was lower at RM22.8 million (-4.7%), after stripping off foreign exchange losses of RM1 million due to a higher tax expense for the quarter.
Its full-year earnings were in line with our expectations, making up 97% of our estimates. Magni-Tech proposed a final dividend of five sen per share for 4QFY19, bringing the total dividend declared for FY19 to 23 sen (FY18: 20 sen) — a total payout of 36.5%. We maintained our “outperform” call on Magni-Tech with a higher sum-of-parts-based TP of RM6.60 as we rolled over our valuation base year to calendar year 2020 forecasts (CY20F). We still like Magni-Tech for its solid fundamentals — with its net cash position of RM211.4 million or RM1.29 per share as at April 30, 2019; an attractive dividend yield of 4.2% for FY20F; and its steady earnings growth.
Its revenue for 4QFY19 was up 6.4% y-o-y. The garment segment, the largest revenue contributor for Magni-Tech, recorded a higher revenue of 7.4% y-o-y mainly due to higher sales orders received. The packaging segment’s revenue slipped 1.4% y-o-y as sales orders declined.
Its profit before tax (PBT) was up 18% y-o-y for 4QFY19. The garment segment’s PBT grew 17% y-o-y in tandem with the higher sales orders and supported by a lower foreign exchange loss of RM2.8 million in 4QFY19 versus 4QFY18’s RM4.3 million. The packaging division’s PBT jumped 35.6%, mainly attributable to a better gross margin, and higher interest and dividend income.
Magni-Tech is expected to benefit from the US-China trade spat. We expect a better performance from Magni-Tech in FY20F as the continuing trade dispute is expected to benefit Magni-Tech due to major US customers shifting orders from China to other manufacturers in the region. — PublicInvest Research, June 24