Magni-Tech (Magni)’s 1QFY25 core net profit jumped 56% YoY to RM44.5m, mainly driven by stronger sales from the garment segment. Results were above our expectations, accounting for 34% of our full-year forecasts. The discrepancy in our numbers was mainly due to the stronger-than-expected sales. We adjust our earnings forecast upwards by 7-10% for FY24-26F, to account for the robust sportwear demand. Going forward, we are still optimistic on Magni’s future growth on increasing awareness among consumers towards health and wellness which should lead to stronger apparel sales. We change our valuation methodology from SOP to Dividend Discount Model (DDM) with a TP of RM3.02, to better reflect Magni’s value in anticipation of steady dividend distribution due to stable earnings growth. Maintain Outperform. On a side note, Magni declared a higher interim dividend of 5sen (1QYF24: 2.8sen).

• 1QFY25 revenue increased by 34.9% YoY to RM437.6m, mainly drivenby the increase in sales from the garment segment (+37.9% YoY). Thishas helped to offset the decline in packaging segment’s performance,which fell 6.4% YoY due to lower sales.

• 1QFY25 core net profit surged 56.4% YoY to RM44.5m, on higher salesand interest income received. Despite recording a strong YoY growth inrevenue, Magni’s operating profit margin fell 0.2 ppts to 11.2% (1QFY24:11.4%), mainly due to higher labour cost in Vietnam following theadjustment in Vietnam’s minimum wage and the unfavourable foreignexchange rate.

• Change to DDM. We change our valuation methodology from SOP toDDM, as we believe that the DDM will better reflect Magni’s value, inanticipation of a sustained growth in dividend payouts on stable earningstrajectory. We raise our dividend payout ratio forecast to 50%, translatingto an attractive dividend yield of 7% in FY25F. As such, our TP is adjustedto RM3.02, based on a cost of equity of 8.5% and a growth rate of 3%.

• Outlook. While near-term headwinds remain on softer consumerspending, we are still positive on Magni’s long-term growth due to robustathleisure sales. This is mainly underpinned by the increase consumerawareness on health and wellness, as well as an increase in casual dresscodes in workplace and social settings which has helped to boostsportswear sales.

Source: PublicInvest Research - 4 Sept 2024