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- Magni is principally engaged in two business segments which are a) manufacturing and sales of garments, b) manufacturing and distribution of flexible plastic and corrugated packaging products. The group operates in Malaysia and Vietnam.
- For the garments segment, Magni is an OEM for reputable brands such as Nike, Lacoste, Patagonia and Hurley. It specialises in woven sportswear ranging from jackets, pants and warmup suits. The garment arm is the key contributor to Magni’s earnings, contributing about 90% of revenue historically. Over 90% of its apparel sales are also derived from its single major customer Nike, the worl’s largest sportswear company.
- For the garment segment, Magni has a combined annual capacity of 37.3m pieces or 161 production lines, with >90% of its production in Vietnam’s manufacturing plants while the remainder from Malaysia. For the packaging business, products are mainly used in F&B, rubber-based, healthcare, baby diapers, consumer household, and electronic sub-sectors. The packaging segment derives >90% of its sales locally, of which 50% of them are mainly exporters.
*Financial Analysis*
- In 3Q21, share price saw a correction on weak earnings results. The weak result is mainly due to lockdown in Vietnam from mid-July to end-Sept, causing Magni’s production plants in Vietnam to be temporarily closed. Nevertheless, operations have resumed since early-Oct and earnings should recover to normalised level from 4Q21 onwards.
- Since 2017, Magni has been delivering stable revenue of RM1.1-1.2b, with about RM120m net profit. Even during Covid in FY21, Magni is still able to deliver RM1.2b revenue and RM127m net profit, proving that its business model is defensive and inelastic in nature.
- Company has a low gearing/leverage balance sheet, with about RM386.4m cash and liquid investments (money market unit trusts) as of 31 Oct 2021 with zero borrowings. This means that the company is a net cash company (89c/share). To add on, the company never had a loss making quarter and have been profitable every quarter since 2002.
*Valuations*
- As covid tapers off and governments not imposing any strict lockdowns, earnings shall recover to the RM120m net profit/year level soon. This derives a 27.6sen eps and Magni is currently trading at only 7.4x normalised PE.
- To add on, Magni has been paying 18-23sen dividends in FY16-FY20 (pre-covid). This means that if Magni restore this dividend payout when earnings normalised, the implied dividend yield is 8.9-11.3% at current share price.
- If we assume earnings to normalise to RM120m net profit/year, Magni has an EPS of about 27.6sen. Pegging this to the global apparel OEM’s 5-year mean PE of 10x PE, Magni’s fair valuation should be around RM2.76-RM3.31. This premises a potential upside of 37%. Even if we assume share price to only recover to pre-covid range of RM2.50, potential upside is still 24%.
*Technical comments*
- Magni formed a bullish crossover from the MACD with a closing above RM2.00 yesterday and this should create a base for the new up-leg. RSI has also seen and uptick and the DMI is currently on a bullish crossover.Next immediate resistance will be RM2.14 and RM2.24, with support at RM1.89.
*Disclaimer: This is not a buy/sell call, just personal research. Do trade at your own risk.*
