Magni-Tech Industries Bhd
(Dec 11, RM2.56)
Maintain outperform with an unchanged target price of RM2.91: Magni-Tech Industries Bhd posted a 17.8% year-on-year (y-o-y) revenue growth to RM301.3 million for the second financial quarter ended Oct 31, 2019 (2QFY20), while its net profit jumped by 28.7% y-o-y to RM29.9 million, mainly attributable to promising sales contributions from its garment segment and lower operating cost. After stripping out foreign exchange (forex) gains of RM2.7 million, Magni-Tech’s first half of FY20 (1HFY20) core net profit was RM57.6 million, broadly in line with our expectations at 46.4% of our full-year estimate. We leave our earnings forecasts unchanged as 3Q is a seasonally stronger quarter. Moving forward, we believe higher capacity from its two-phase expansion plan will enable Magni-Tech to fulfil more orders from its single major customer. Garment-segment revenue, Magni-Tech’s largest contributor, jumped by 21.9% y-o-y to RM277.2 million due to higher sales orders, a direct consequence of trade diversions from US customers. On the flip side, packaging segment revenue fell by 14.7% to RM24.1 million as sales orders fell.

Garment-based profit before tax (PBT) grew by 27.9% y-o-y, mainly boosted by better operational efficiencies of its manufacturing plants in Vietnam, higher forex gains (2QFY20: RM2.6 million; 2QFY19: RM2 million) and higher investment-related income. Its packaging division’s PBT was lower in tandem with lower sales orders.

Magni-Tech will be one of the major beneficiaries of the US-China trade dispute as its major US customer diverts orders away from China to Vietnam and other garment manufacturers in the Asean region. — PublicInvest Research, Dec 11