Despite posting a revenue growth of 4.7% YoY to RM305.6m for 1QFY22, Magni’s net profit fell by 21.3% YoY to RM21m. The weaker set of numbers was mainly dragged by the unfavourable operating environment given the stricter lockdown orders in Malaysia and Vietnam. After adjusting for the one off items, Magni’s core net profit stood at RM21.6m. The results were below our estimates, accounting for 18% of our forecast. We are adjusting our forecast for Magni downwards by 4-12% for FY22-24F to reflect the impact of a longer-than-expected lockdown in Vietnam and higher operating costs. While earnings weakness is expected following the lockdown in Vietnam, we are still positive on Magni’s long-term prospects driven by the growing awareness on healthcare and fitness, which should lead to higher demand for sportswear. Our Outperform call on Magni is maintained, with a lower TP of RM2.85 (RM2.95 previously).

• 1QFY22 Revenue (+4.7% YoY, +2.7% QoQ). Garment revenue grew by 5.6% YoY to RM283m, mainly due to higher sales orders received. We mainly attribute it to stronger sales in the US and European region, given the reopening of physical retail. On the other hand, packaging segment revenue slipped by 5.5% YoY, due to lower sales orders received.

• 1QFY22 pretax profit (-21.3% YoY, -33.1% QoQ). Despite recording higher revenue, garment segment PBT dropped by 18.4% to RM27.2m, likely due to higher cost of sales and lower operational efficiency arising from the lockdown restrictions in Vietnam. To recap, Vietnam imposed a strict lockdown on 16th July 2021 and has been extended to 15th September 2021. Meanwhile, PBT for the packaging segment decreased by 66.2%, mainly affected by the higher paper and plastic raw materials costs.

• Outlook. While we are expecting earnings to remain weak in the coming quarter due to the extension of lockdown measures in Vietnam, we believe the easing of restrictions beyond September will be positive for Magni as there will be less disruption to its manufacturing activities. We understand that Magni is actively engaging with its customers and are looking to ramp up its production when operation resumes. In the long run, we believe that with the growing popularity for athleisure apparel and the increase in consumers’ awareness about health and fitness, it should continue to drive the demand for sportswear globally.

Source: PublicInvest Research - 15 Sept 2021