by ANIS HAZIM / pic credit: ANNUAL REPORT

ESTIMATES on Magni-Tech Industries Bhd have been downgraded by 3% to 16% for the financial year of 2022 to 2024 forecast (FY22-FY24F) to account for the suspension of its Vietnam operations and higher raw material costs.

Public Investment Bank Bhd (PublicInvest) analyst Wong Ling Ling stated that Magni-Tech’s results were below expectations, accounting for 20% of PublicInvest’s research forecast figures.

“As such, we are adjusting our estimates downwards by 3% to 16% for FY22-FY24F, mainly to account for the suspension of Vietnam operations and higher raw material costs,” Wong wrote in a research note on the company yesterday.

The investment bank, however, is anticipating a recovery in Magni-Tech’s earnings in the second half of 2022 onwards driven by its major customer’s investment in digital platforms to spur online sales, stronger holiday sales as well as the growing awareness on health and fitness among consumers.

Magni-Tech’s net profit declined 18% year-on-year (YoY) to RM17.1 million in the second quarter ended Oct 31, 2022 (2Q22).

After adjusting for one-off disposal and foreign exchange gain amounting to RM17.3 million, Magni-Tech slipped into a core net loss of RM0.2 million.

“The weak performance was mainly due to suspension of its Vietnam operations as a major lockdown was imposed by the Vietnamese government,” stated Wong.

The two-month (July-Sept) suspension resulted in Magni-Tech’s garment business’s revenue falling 65.2% YoY to RM85.1 million.

Its packaging segment revenue grew by 11.1% YoY to RM27.2 million in the quarter due to higher sales orders received.

Wong noted the packaging segment profit before tax decreased by 48.1% YoY, mainly attributable to the increase in raw material costs for both paper and plastic packaging.

“Magni-Tech’s operating margin also fell to 0.4% compared to 9.6% in 2Q21 in tandem with the lower production days,” she said.

PublicInvest is expecting a recovery in Magni-Tech’s earnings moving forward, following the easing of lockdown measures in Vietnam.

“We gather that Magni-Tech has been ramping up its production to meet the demand from its major customer and is currently operating at a utilisation rate of 85%.

“We believe the fundamental shift in consumer behaviour towards online channels will bode well with Magni-Tech, as its major customer continues to invest on its digital platforms to directly connect and provide a better experience to consumers,” she added.

The analyst opined the increase in consumers’ desire towards athleisure apparel and larger movement in health and fitness should continue to drive global sportswear demand.

“We remain optimistic on Magni-Tech’s future prospects. Our ‘Outperform’ call on Magni-Tech is maintained with a lower target price of RM2.65 from RM2.85 previously,” she wrote.

Concurrently, Magni-Tech declared a single interim dividend of two sen, to be paid on Jan 25, 2022.

Magni-Tech shares rose two sen to RM1.95 yesterday, valuing the Penang based packaging and garment concern at RM8845.2 million.