Magni-Tech (Magni)’s 3QFY24 core net profit surged by 58.2% YoY to RM39.1m, on higher sales orders from the garment manufacturing segment. Cumulative 9MFY24 core net profit of RM89.2m was above expectations, accounting for 84% of our full-year estimates. The discrepancy in our forecast was mainly due to the stronger-than-expected sales from the garment segment. We adjust our forecast for FY24-26F higher by 8-11%, as we raise our sales assumptions to factor in robust sportswear demand. We believe that consumers focus on health and active lifestyles will remain the key growth driver for global consumption of sportswear. Additionally, we view Magni’s current valuation as attractive, given that it is trading below its average 5-year PER of 8x (see figure 1). Following our earnings adjustment, our TP for Magni is revised higher to RM2.50. We reiterate our Outperform call on Magni.

• 3QFY24 core net profit jumped by 58.2% YoY to RM39.1m, attributable to the greater production efficiency given the stronger sales orders. As a result, Magni’s garment segment operating profit margin expanded by 4.4 ppts to 12.5%.

• Dividend. Magni declared a higher third interim dividend of 3.5 sen (3QFY23: 2.0 sen), bringing the YTD dividend declared to 8.5sen. This translates to a payout ratio of 39.2% or a dividend yield of 4.2%.

• Outlook. Going into 4QFY24, we expect Magni to post weaker earnings QoQ, as 3Q has generally been the stronger quarter given Magni’s product range. Note that the group specializes in outerwear and woven sportswear. Nevertheless, we opine that the growing awareness on the importance of sports, health and wellness will continue to be the key drivers for sportswear. While inflationary pressure may lead to lackluster sales in the near-term, we believe that the upcoming summer Olympics in Paris should provide a boost to athleisure sales. Furthermore, Magni’s major client is also looking to launch new products that could drive sales.

Source: PublicInvest Research - 19 Mar 2024