Magni-Tech gains on improved 1Q earnings

It has gained RM163m in market capitalisation since last Tuesday and is now valued at RM1b


MAGNI-TECH Industries Bhd’s share price has risen to a two-year high since posting a better financial performance in its first quarter for the financial year ending July 31, 2020 (1QFY20), last week.

The counter closed up 19% to RM6.40 since the 1Q results were announced for the week.

It has gained RM163 million in market capitalisation since last Tuesday and is now valued at RM1.04 billion.

Public Investment Bank Bhd (PublicInvest Research) foresees Magni-Tech, one of the contractors for Nike brand in Malaysia, benefitting from new capacity and being one of the major beneficiaries from the ongoing trade dispute between the US and China on expectations its major US customers will divert orders to Vietnam and other Asean garment manufacturers.

“We understand that Plant 2’s construction was completed in March 2019 and is currently contributing positively to Magni-Tech’s business, while having recruited more than 800 workers for the new plant,” PublicInvest Research noted recently.

It added Magni-Tech’s net cash position remains healthy at RM225.8 million (or RM1.38 per share), while its dividend yield looks attractive at 3.9%.

As such, PublicInvest Research reiterates its ‘Outperform’ call on the counter with a target price (TP) of RM6.60. Wilson & York Global Advisers Sdn Bhd expects Magni-Tech’s operations to remain profitable while conditions remain challenging.

“With economic growth slowing in many countries around the world, it is unlikely that sales will continue to accelerate sharply in the quarters to come.

“Though Magni-Tech may benefit from some shifting of production from China to Vietnam, the US has already placed higher tariffs on aluminium and steel made in Vietnam on grounds that China was using Vietnam to avoid anti-dumping duties,” it said last Tuesday.

As such, Wilson & York prefers to wait another quarter or two for confirmation of continued garment demand and little or no punitive US tariffs on garments made in Vietnam before placing a ‘Buy’ recommendation on Magni-Tech.

It added labour costs in Vietnam may rise as increasing number of Chinese-owned factories would likely lift wages as they compete to attract workers.

Wilson & York has a ‘Hold’ recommendation on the counter with a TP of RM5.30.

Magni-Tech’s profit for 1QFY20 rose 38.62% year-on-year (YoY) to RM30.51 million from RM22.01 million.

In an exchange filing on the matter, the group said the profit before tax (PBT) for its garment segment expanded by 38.8%, mainly due to higher revenue and better gross profit margin mainly driven by the improvement in operational efficiency.

Likewise, its packaging segment’s PBT for the quarter increased 25.9%, mainly due to better gross margin, and higher interest and dividend income.

Quarterly revenue rose 19.58% YoY to RM327.33 million, while earnings per share for the quarter was 18.76 sen against 13.53 sen in 1QFY19.

Magni-Tech declared a single-tier interim dividend of seven sen to be paid on Oct 25, 2019.

The group said manufacturing and sale of garment will still be its major revenue contributor moving forward.

“The group’s operating environment for FY20 is expected to be challenging amid global economic uncertainties. Nevertheless, both the garment and packaging businesses are expected to remain profitable during the said period,” it noted in its filing.