Magni-tech (Magni) has temporarily halted 2 of its garment production base in Ho Chi Minh and Tien Giang province from 19th July 2021, in compliance with Directive No.16 issued by the Vietnamese government to curb the spread of Covid-19. While the production interruption is expected to cause delay in shipments, we think that it will not have a material impact on Magni’s earnings, as the group is currently in the midst of discussing with its customer to reschedule delivery dates. In addition, should the need arises, we believe that Magni will be able to increase its production via extended shifts upon recommencement. Nevertheless, we are adjusting our earnings estimates for FY22F downwards by 7%, as we are taking a more conservative approach by assuming a 1-month closure of its production facilities. As such, our SOP based TP is subsequently lowered to RM2.95 (previously RM3.00). However, our Outperform call on Magni is maintained, as we are still positive on Magni’s long term outlook, driven by the growing awareness about healthcare and fitness which would likely increase demand for sportswear.

• Directive No.16. On 16th July 2021, the government of Vietnam has ordered the implementation of Directive No.16, whereby non-essential businesses are required to close in order to contain the spread of Covid-19 in 16 southern provinces of Vietnam. Barring any unforeseen circumstances, manufacturing facilities are expected to be closed for 14 days under the directive. The group had also implemented mitigation steps to contain and safeguard the health of workers who may have been exposed to the virus.

• Earnings impact. The temporary closure of Magni’s Vietnamese manufacturing facilities is expected to result in delay in shipments to its single largest customer. However, the group is looking to mitigate the impact by proactively engaging with its single largest customer to manage the production capacity challenges and reschedule delivery dates. Furthermore, we think that Magni could increase its production with extended shifts when operation resumes if needed. We estimate that for every two weeks of closure, Magni’s earnings will be impacted by c.4%.

Source: PublicInvest Research - 23 Jul 2021