Jack

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Once you become fearless, life becomes limitless.

Joined Dec 2019

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*Magni at 2.02*

*Company Background*

- 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.*
4 months · translate
Thank you mmc for the excellent ride. Goodbye :)
6 months · translate
Cut loss point around 1.85 for mid term investors.
8 months · translate
*JHM at 1.72*

- JHM Group is an engineering solutions provider delivering customised solutions to the automotive, industrial, aerospace, medical devices and consumers sectors. The group is involved in the entire automotive LED lighting modules product development process – from conceptualising, designing, manufacturing to testing of the said modules which are then shipped to its customers who in turn supply to Tier One automotive manufacturers in the US.

- JHM’s core business focused on the automotive segment (LED), contributing >60% of group’s revenue. This includes Design, SMT production and assembly of automotive rear, interior and front headlamp lighting, inclusive of shifter control and turn signal indicator.

*New Development Catalysts*

- JHM secured four new clients this year, including Proton-Geely, and has a total automotive customer base of seven. Since the beginning of this year, JHM have been awarded four projects, and are bidding for another project consisting of 12 different components for car lighting worth about US$5m [RM21m] a year.

- a) Secured two new clients which are North America Lighting (largest auto lighting company globally) and Volvo Trucks (secured a US$1.3m (RM5.35m) order for 2021)

- b) In Oct 2020, JHM entered into a MOU with US-based company MASS Precision Inc to create an efficient and effective supply chain by setting up a JV company to support the semiconductor industry in Malaysia and the Asia Pacific region.

- c) By 3Q21, JHM will provide manufacturing support in supplying 5G and fibre optic parts to a United States company.

- d) In May 2021, JHM signed a contract with Skywooo to support assembly of components of Proton cars in Malaysia plus OEM business for the ASEAN Region market. The JV will be tasked to assemble audio, video and navigator (AVN) in the first phase with a target revenue stream of RM20m a year.

- e) In June 2021, JHM also entered into a technical collaboration agreement with Jiangsu Dekai Auto Parts to create an efficient and effective supply chain to support automotive lighting to Proton-Geely. Dekai is one of China’s Tier 1 (dealing directly with automotive OEM) players. Proton’s forecast is about 50,000 units a year for the Southeast Asian market, translating into lighting revenue of about RM100 million a year for JHM.

f) For the industrial segment, which involves the development of microelectronic components, JHM is looking to log US$45m a year in revenue over a 10-year period from its newly established, 75%-owned subsidiary Mace Hermetic Components Sdn Bhd.

g) JHM has plans to acquire one to two companies to further grow its industrial business, and the target companies have an annual net profit of RM10m.

h) JHM also plans to deepen its exposure in the EV space. Geely has a few EV models that are going to be introduced in Malaysia. JHM is looking forward to the battery pack for EV. JHM’s other EV-related moves include the design of LED lighting for autonomous EV trucks for a US customer.

*Investment Thesis*

- With the newly secured clients, potential incremental revenue is roughly about RM346m/year for JHM upon completion. That’s about 135% leap from 2019’s revenue base of RM256m.

- A few of these contracts are secured and will begin contributing to earnings from 3Q21 onwards, thus JHM’s earning base shall see meaningful growth in coming quarters. With Tesla’s market cap exceeding US$1trillion recently and global trend of transitioning into EV space, JHM is in a sweet position to grow its orderbook in future.

- If we conservatively assume net profit to grow by 100% in coming two years, although potential revenue growth is about 135% from 2019’s base and new contracts secured has higher margin than past products, JHM’s fair value should be about RM2.75 based on 25x forward PE.
8 months · translate
*Humeind at 1.05*

- Malaysia's cement sector is expected to see further cement price hikes, with the emergence of a price leader in the market (controlling close to 60 per cent of total industry clinker capacity) following YTL Cement Bhd’s acquisition of Malayan Cement Bhd in 2019.

- In Malaysia, supply pressure appears after Malayan Cement and Cement Industries of Malaysian Bhd put one clinker plant offline, effectively removing clinker capacity totalling 2Mta, equivalent to eight per cent of total domestic clinker capacity from the market.

- In China, recent carbon emissions crackdown have caused supply shortages and pushed local cement prices higher. China’s average cement price spiked 30+% since September, reaching all time high. This bodes well for Malaysian cement player that exports to China, and shall further lift Malaysia’s cement price.

- With the economy reopening, the worst is over for the property and construction sector, the cement sector appears as a laggard compared to other reopening stocks. Being the fourth largest cement producer in Malaysia in terms of clinker capacity, Hume has a healthy utilisation rate of 80-90% (vs industry average of 60-70%) and better operational efficiency.

- On technical analysis, Humeind have been retracing from recent high of 1.20 and year high of RM1.45, which provides a good trading range of 14-38%. Candlestick pattern last week also formed a hammer, which is usually seen as a reversal trend, with rising volumes.

- Disclaimer: This is not a buy/sell call, just personal analysis. Kindly trade/invest at your own risk.
8 months · translate
- If we peg Annjoo to 8x PE, Annjoo’s indicative fair value should be about RM4.64, a 100% upside from current share price of RM2.35.

*Disclaimer: This is not a buy/sell call, just personal research. Kindly trade at your own risk.*
8 months · translate
- If we annualised Annjoo’s 1H21’s EPS of 29sen, Annjoo is now trading at only 4xPE. While the structural issue of China’s carbon emission crackdown and strong steel demand from global infrastructure recovering after economy reopening from Covid-19, Annjoo’s earnings is likely to be strong in coming few years.
8 months · translate
*D) Financials Analysis*

- Annjoo recorded impressive results in 1H21 with 5-years record high net profit. This is mainly due to strong steel products’ demand, freight/container issues which caused shortages, and higher ASP from booming economy reopening after COVID-19 which have caused steel futures spiking to all-time high. 2Q21 results is one of the best quarter in Annjoo’s history despite operating with limited workforce capacity for 2months during MCO.
8 months · translate
- With China’s carbon neutrality target and emission crackdown likely to reduce its local steel production over the long run: a) crude steel production should have no capacity expansion from 2021 onwards; b) stricter environmental regulations will squeeze out small-sized and low-efficiency capacity producers; and c) sector restructuring to continue with M&As consolidation, steel products’ demand and ASP shall continue to be strong over the coming few years.
8 months · translate
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