KUALA LUMPUR: Magni-Tech Industries Bhd
’s growth will be supported by strong demand for sportswear, increasing orders from its key customer and healthy capacity expansion, says Public Investment Bank (PIVB) Research.
It had on Friday projected conservative core earnings compounded annual growth rate of 4.2% over the next three years.
“We initiate coverage on Magni-Tech with a Neutral rating however, given limited upside to our target price of RM7.20 based on sum-of-parts valuation methodology,” it said.
PIVB Research said Magni-Tech which was listed in 2000, started back in 1997 as a packaging company before diversifying into the apparel business in 2006.
Currently, the group has two core businesses, namely garment and packaging.
With the aid of the strong growth in its garment arm, Magni-Tech has consistently recorded positive core net profit growth since 2010, at an encouraging CAGR of 30.2%.
Going forward, we believe Magni-Tech’s growth will be supported by strong demand for sportswear, increasing orders from its key customer and healthy capacity expansion.
Magni-Tech’s subsidiary, South Island Garment Sdn Bhd, is an original equipment manufacturer (OEM) for a number of 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 the group’s overall performance, which account for 89.1% and 96.7% of its FY17 revenue and PBT respectively, while the remainder comes from the packaging segment.
Over 90% of its apparel sales are derived from its single major customer, the world’s largest sportswear company. At present, the group has an annual capacity of 37.3 million pieces.
“Magni-Tech has a strong balance sheet, sitting on a net cash position of RM188.2mil as at 1QFY18 (cash balances of RM100.2mil and investments in money markets unit trusts of RM88mil) with zero debt.
“The group has consistently paid out more than 30% of its net profits as dividends to reward its shareholders. For FY18-20F, we estimate an average dividend payout of 30%, translating to an average yield of around 3%.
“With the two new manufacturing plants potentially coming on stream in FY19F, we anticipate another round of ramp-up in production capacity in order to meet growing demand for sportswear.
“As such, we believe the group is poised for the next growth trajectory. While waiting for capacity to pick-up in FY19F however, we expect a marginal decline in core net profit for FY18F (-2.1% year-on-year) as its capacity utilisation is almost full at c.90% currently.
"The projected revenue growth of 2.6% YoY is expected to be offset by lower core net profit margin (-0.5 percentage points on-year) as we anticipate margin compression arising from higher operating expenses (particularly higher labour costs),” it said.
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