Magni-Tech’s (Magni) 3QFY22 headline net profit fell by 45.5% YoY to RM26.7m, as the packaging segment in Malaysia slipped into the red and the after-effects of the suspension of its Vietnam garment operations. After adjusting for one-off items, Magni’s core net profit came in at RM26.2m. Cumulative 9MFY22 results were below our expectations, accounting for 53% of our FY22 estimates. We mainly attribute the discrepancy in our numbers to the slower-than-expected pick up in manufacturing activities post lockdown. In view of ongoing global supply chain disruptions and China’s new lockdown measures to combat Covid-19, we are adjusting our earnings estimates downwards by 5%-21% for FY22-24F. We continue to remain optimistic on Magni’s long-term outlook however, as we think that the rising fitness and health awareness will drive sportswear sales. Our Outperform call on Magni is maintained, with a lower TP of RM2.45 (RM2.65 previously) however.

• 3QFY22 revenue fell by 15% YoY to RM312.8m. Garment segment decreased by 15.8% YoY to RM286.7m, mainly due to after-effects of the suspension of Magni’s Vietnam garment operations. Meanwhile, packaging segment revenue declined by 4.3% YoY to RM26.1m, affected by lower sales orders and the flood in Dec 2021.

• 3QFY22 core net profit declined by 49% YoY to RM26.2m. Operating profit margin for the garment segment fell by 1.4% to 12.4% likely attributable to the lower economies of scale due to the slower-than expected ramp up in manufacturing activities post lockdown. Additionally, the packaging segment slipped into the red, dragged by the flood in Dec 2021 and higher raw material costs.

• Dividend. Magni declared a second single tier interim dividend of 2 sen, bringing the YTD dividend declared to 4 sen, translating to a dividend yield of 2.1%.

• Outlook. We remain wary on Magni’s near-term outlook following lockdown measures introduced in China which may hurt Magni’s major customer’s physical store sales. However, we believe that the digital driven growth by Magni’s client will be able to partially mitigate the impact of decreased store foot-traffic. We are still positive on Magni’s long-term prospects, premised on the ramp up in utilisation following the easing in Vietnam’s lockdown measures, supported by the rising awareness in health and fitness which should drive global sportswear demand.

Source: PublicInvest Research - 21 Mar 2022