Company Background. Magni-Tech Industries (Magni-Tech) is principally involved in the manufacture/supply of garments and a wide range of flexible plastic & corrugated packaging products. Magni-Tech has 2 main operating segments: (i) manufacture/sale of garments, and (ii) flexible plastic packaging & corrugated cartons. The top 5 markets for the group’s products have generated 92% of the group total sales in FY23: USA (27%), European (26%), China (17%), other Asian countries (13%) and Malaysia (9%).

Prospects. (i) For garment segment, Magni-Tech plans to expand production capacity and diversify production locations to reduce concentration risk as well as align with a multi-country customer strategy, (ii) Packaging segment will maintain its strategic focus on high value-added consumer goods such as food & beverage, pharmaceuticals and healthcare-related products, (iii) The group is currently exploring opportunities to diversify customer portfolio through mergers & acquisitions, and (iv) Paying a dividend payout ratio ranging from 31% to 41% over the past 5 years despite not adopting any policy at this stage.

Financial Performance. In 1QFY24, Magni-Tech posted higher revenue of RM324.4mil (+31.5% QoQ) with PAT of RM32.7mil (+26.6% QoQ). This was mainly due to higher sale orders received, lower operating costs & expenses, higher investment income and greater foreign currency exchange gains.

Valuation. Magni-Tech is trading at an attractive FY24F P/E of 8.2x, versus to Bursa Consumer Index’s 5-year forward average of 18.4x. As a comparison, China-based Qingdao Kutesmart Co. and Thailand-based Thanulux Public Company, both also involved in apparel manufacturing, trade at much higher trailing P/Es of 35x and 26x respectively.

Technical Analysis. We expect further upside for Magni-Tech after it pushed above the RM2.00 psychological mark and hit a new 52-week high a few sessions ago. In view of the uncovered upside gap formed on 12 Sept and together with rising EMAs, the upward momentum is likely to pick up further. A bullish bias may emerge above the RM2.00 level, with stop-loss set at RM1.88, below the 50-day EMA. Towards the upside, near-term resistance level is seen at RM2.20, followed by RM2.40.

Source: AmInvest Research - 18 Sept 2023