Magni-Tech Industries Berhad (Magni-Tech) recorded higher 3QFY18 revenue and core net profit of RM313.3m (+8.4% YoY, +24.2% QoQ) and RM33.6m (+5.4% YoY, +51.9% QoQ) respectively. The results were within our expectation at 77.0% of our full-year estimates, but above consensus’ expectation at 83.8%. 3QFY18 performance showed significant improvement following a weak first half, mainly driven by higher sales order and improved profit margins. Core net profit margins improved by 1.8ppts YoY to 10.7% in 3QFY18. In line with its better performance, Magni-Tech declared a higher dividend of 7sen for 3QFY18 (3QFY17: 6sen) which includes a 3sen interim dividend and 4sen special dividend. We reiterate our Outperform call on Magni-Tech with an unchanged TP of RM6.40, which corresponds to a forward 10x PE for CY18F core earnings. We continue to like Magni-Tech for its solid fundamentals (with a net cash position of RM173.0m or RM1.06/share as at 3QFY18), undemanding valuation (currently only trading at a 7x CY18PER at core earnings level) and attractive dividend yield (FY19F: 4.3%).

• 3QFY18 revenue grew by 8.4% YoY and 24.2% QoQ, mainly driven by its largest contributor, garment division. Garment revenue increased by 10.9% YoY in 3QFY18 due to higher sale orders received. Meanwhile, packaging revenue was lower by 12.2% YoY in 3QFY18 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) grew by 7.1% mainly due to higher orders received.

• 3QFY18 PBT improved by 8.3% YoY and 60.6% QoQ. Excluding the one off offset printing packaging business closure costs of RM2.9m incurred in 3QFY17, core PBT increased by only 1.1% YoY in 3QFY18. Garment PBT grew by 2.3% YoY in 3QFY18 mainly due to higher revenue and investment income but was weighed down by net forex loss in 3QFY18. Packaging PBT increased by 35.1% YoY in 3QFY18 due to the one-off closure costs incurred in 3QFY17. Packaging PBT of continuing operations dropped by 35.1% due to higher raw material costs and operating expenses incurred despite posting higher revenue.

• Strong fundamentals, underpinned by capacity expansion. The Group’s long-term prospects continue to be underpinned by the two new manufacturing facilities in Vietnam which potentially coming on stream in FY19F. The Group’s capex spent in 9MFY18 has increased to RM10.5m, above its last five years’ full-year capex of RM3.2-7.8m p.a. As mentioned in our earlier report, it planned to allocate higher capex for the construction of the two new factories. As such, we believe that the increase in capex spending was due to the construction of new facilities.

Source: PublicInvest Research - 16 Mar 2018