Magni-Tech (Magni)’s 2QFY24 core net profit fell by 13.7% YoY to RM21.7m, mainly due to lower sales from both garment and packaging segments. Magni’s 1HFY24 core net profit of RM50.1m was in-line with expectations, accounting for 47% of our full-year forecasts. We are still positive on Magni’s outlook, as we believe that the increasing awareness for health, sports and wellness will continue to drive the global athleisure market, which should result in a rise in demand for sportswear. We also see Magni’s current valuation as attractive, as it is trading below its average 5-year PER of 8x (Figure 1). All told, we maintain our Outperform call on Magni, with an unchanged SOTP of RM2.30.

• Results review. Magni’s 2QFY24 fell 16.2% YoY to RM287.6m, as both garment (-15.6% YoY) and packaging (-22.1% YoY) segment saw a decline in sales. We mainly attribute the lower garment segment sales to weaker exports to China, given the continuous slowdown in China. Magni saw its core net profit decline by 13.7% YoY to RM21.7m, likely due to lower production efficiency dragged by the weaker sales. As a result, Magni’s operating profit margin fell by 0.2 ppts to 8.8%.

• Dividend. Magni declared a second interim dividend of 2.2sen (1QFY23: 2.3 sen), bringing the YTD dividend declared to 5.0sen. This translates to a payout ratio of 39.8% or a dividend yield of 2.6%.

• Outlook. We foresee Magni posting stronger earnings in 2HFY24, driven by stocking up activities from its major customer in anticipation of the yearend festive season and the resumption in orders following the ease in inventory glut. In addition, the growing awareness in health and sports will continue to drive sportswear growth while being supported by the Paris Olympics that is slated to be held next year. In addition, we understand that Magni will continue to focus on its ongoing cost optimization initiatives (ie better resource allocation and solar panels) to support its margins.

Source: PublicInvest Research - 6 Dec 2023