Magni-Tech (Magni) recorded a core net profit of RM25.1m in 2QFY23, a sharp contrast to the core net loss of RM0.2m in 2QFY22, the noticeably better set of results on a YoY basis mainly due the absence of Covid-19 related operational halt in Vietnam. Cumulative 1HFY23 core net profit of RM48.1m was below our expectations however, accounting for 43% of our full-year forecast. The discrepancy in our numbers was mainly due to weaker-than-expected profit margins. We cut our earnings forecast for FY23-25F by an average of 12% to account for the weaker profit margins on rising operating cost (labour cost) and slower near-term earnings growth given rising inflationary pressures. Nevertheless, we are still positive on Magni’s long-term outlook, driven by the increase in consumer awareness towards health and wellbeing. We maintain our Outperform call on Magni, with a lower SOP-based TP of RM2.35.
- Results review. 2QFY23 revenue jumped by 205.6% YoY to RM343m, on stronger contribution from both packaging (+0.9% YoY) and garment (+271% YoY) segments. The strong growth from the garment segment was mainly due to a low base effect. Recall that Vietnam imposed a strict lockdown from July 2021 to Sept 2021 which affected Magni’s operations. Magni’s operating profit margin improved by 8.6 ppts on the back of greater operational efficiency.
- Dividend. Magni declared a second interim dividend of 2.3sen, bringing YTD dividend declared to 4.5sen, translating to a dividend yield of 2.5%. We think that Magni’s dividend yield is appealing, supported by its steady income generation. We are forecasting a dividend yield of c.5.2% for FY23F.
- Outlook. We expect Magni to post stronger earnings in 2HFY23, driven by demand for apparel given the growing health and wellness awareness among consumers, further supported by the FIFA World Cup 2022. Meanwhile, we believe that exports to China should recover going forward, with China relaxing its Covid restrictions. We think that Magni’s current valuation looks attractive, as it is trading at c.6.5x forward PER, near its -1SD of its 3-year historical average.
Source: PublicInvest Research - 13 Dec 2022