Magni-Tech (Magni)’s 1QFY24 headline net profit grew 36.2% YoY to RM32.7m, mainly driven by the stronger contribution from its garment segment on lower operating expenses. After adjusting for non-core items, Magni’s core net profit came in at RM28.5m. Results was in-line with expectation, accounting for 27% of our full-year forecast. We tweak our FY24- 26F earnings forecast by an average of 2%, due to bookkeeping changes. We remain optimistic on Magni’s future prospects, driven by the growing awareness in health, sports and wellness among consumers. Additionally, we think that Magni’s current valuations is attractive, as it is trading below its average 5-year PER of 8x (see figure 1). As such, our Outperform call on Magni is reaffirmed, with an unchanged SOTP of RM2.30.

• Results review. Magni’s 1QFY24 revenue decrease by 4.8% YoY to RM324.4m as both garment (-4.1% YoY) and packaging (-13.6% YoY) segment saw a drop in sales. Despite recording lower revenue, Magni posted a 24% YoY growth in its core net profit to RM28.5m. The better set of numbers was mainly attributable to the lower operating expenses and higher investment income from the garment segment. This had resulted in a 2.9 ppts expansion in Magni’s operating profit margin to 11.4%.

• Dividend. Magni declared a higher interim dividend of 2.8sen (1QFY23: 2.2 sen), translating to a payout ratio of 37.1%, consistent with its 5-year average payout of c.36%.

• Outlook. We are still optimistic on Magni’s future prospects, as athleisure wear is becoming increasingly popular on the back of the increase in consumer awareness in health, sports and wellness. With CY2024 being a major sporting year (Paris Olympics), we are positive that Magni will be able to ride on the upcoming wave. Furthermore, we believe that Magni’s major customer’s plan to capture more market share by connecting directly to consumers via a consistent and seamless experience will bode well for Magni, as it should translate to higher orders from its major customer.

Source: PublicInvest Research - 12 Sept 2023