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Magni-Tech Industries Berhad (Magni-Tech) reported lower 4QFY18 revenue and core net profit of RM220.6m (-26.4% YoY) and RM23.9m (-38.7% YoY) respectively. Overall, FY18 was a weak-performing year with revenue and core net profit both declined by 5.3% and 11.1% YoY respectively, mainly impacted by lower sale orders received, higher operating expenses (particularly labour costs) and unfavorable foreign exchange movements. The results were within expectations at 101% and 98% of ours and consensus estimates respectively. Magni-Tech declared a lower dividend of 5 sen per share for 4QFY18 (4QFY17: 7 sen), bringing full-year dividend to 20 sen, which represents 35.6% payout for FY18. We maintain our Outperform call on Magni-Tech with an unchanged SOP-based TP of RM6.40. We continue to like Magni-Tech for its undemanding valuation (currently only trading at 8x CY18PER at core earnings level), solid fundamentals (with a net cash position of RM192.9m or RM1.19/share as at 30th April 2018), and attractive dividend yield (FY19F: 3.8%).

    4QFY18 revenue (-26.4% YoY). Garment revenue, the Group’s largest contributor, slipped by 28.0% YoY in 4QFY18 due to lower sale orders received and unfavourable foreign exchange movements (Average USD/MYR: -11.9% YoY in 4QFY18). Meanwhile, packaging revenue was lower by 11.6% YoY in 4QFY18 due to the cessation of offset printing packaging business in 4QFY17. Stripping off the revenue contribution from discontinued operation, revenue for the continuing packaging operations (i.e. flexible plastic & corrugated packaging) declined by 3.4% YoY in 4QFY18, mainly due to lower sale orders received.

    4QFY18 operating profit (-53.0% YoY). Garment’s operating profit dropped by 54.1% YoY due to lower revenue, higher operating expenses and forex loss, while packaging’s operating profit declined by 31.2% YoY due to lower revenue and reversal of provision for OPP business closure costs in 4QFY17. Excluding the forex loss, the core net profit margin declined by 2.2 ppts to 10.8% in 4QFY18 (vs. 13.0% in 4QFY17).

    Expansion updates. One of the two new planned manufacturing facilities has started productions since 2QCY18 while the second factory is still under construction. We expect a better performance in FY19F, supported by the new capacities from the two new manufacturing facilities and a more stablised foreign exchange movement (our in-house forecast: RM4.00 against USD in 2018).

Source: PublicInvest Research - 25 Jun 2018

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