Background and Core Business

Magni-Tech Industries Bhd. (MAGNI) was founded in 1997 and gained listing on Bursa Malaysia’s 2^nd Board in 2000. It was promoted to the Main Board in 2003. The company had its roots in the packaging business, and later diversified into the apparel manufacturing business by 2006 when it completely acquired its subsidiary South Island Garment Sdn Bhd.

Its other wholly owned subsidiaries, South Island Plastics Sdn Bhd, Inter-Pacific Packaging Sdn Bhd and South Island Packaging (Penang) Sdn Bhd are principally involved in the manufacturing of plastic packaging and carton boxes. These packaging products are used in a multitude of products, ranging from food to consumer electronics.

Based on  the latest annual report, the garment business segment (which is export oriented) contributes up to 85.7% (RM 731 million) of its revenue stream, with the balance 14.3% contributed by the packaging segment (RM 122 million).

MAGNI is listed under the Consumer Index, classified in the Process Industries - Containers/Packaging industry. Market capitalisation for MAGNI is about RM 680 million. Its FY starts in 30^th April. Currently, it has just entered the 1^st quarter for FY 2017. 2^nd quarter results are expected sometime in December 2016.

Financial Brief and Ratios (Historical)

Based on its revenue alone, MAGNI has managed to achieve CAGR of 14% for the past 5 financial years (2011 - 2016). This translates to a 36% CAGR for its corresponding net earnings. This growth pattern has been even more exponential these past 2 financial years, with y-o-y growth hitting up to 57%.

Based on the phenomenal growth in earnings, the PE ratio has also been brought in line to about 7, compared to a PE of 26 in FY 2011. This makes it considerably undervalued based on the PE ratio alone, provided it can maintain such high growth rates in the future.

Net profit margin on the other hand is average, considering the industry MAGNI is involved in. In terms of profitability, this goes without saying that management is doing a wonderful job, rewarding shareholders with an ROE of 26 and also dividend yields of 4.31%. MAGNI has been paying dividends annually as far back as 2004, with yields increasing especially since FY 2012. Dividend payout ratios are maintained at about 0.2 to 0.3, which is deemed prudent as the funds can be used to finance its growth.

In analysing its balance sheet and cash flows, MAGNI has favorable liquidity and gearing ratios. It is virtually debt free and generates free cash flow annually. Investors should keep track of increased inventories and receivables (a natural consequence of increased orders) reflected in their FY 2016 annual report. The group is also a beneficiary of MYR depreciation, and has locked in gains of RM 7 million from foreign exchange.

The garment and apparels industry is heavily depended on manual labor; this coupled with increase in minimum wage and short supply of workers will impact the bottom line. Based on the chairman’s statement in the FY 2016 annual report, MAGNI is committed to incorporating new technology in its production line to reduce dependence on manual workers. This capex is seen in the cashflow statement from RM 3 million in FY 2015 to RM 5 million in FY 2016.

iVolume Spread Analysis (iVSA) & comments based on iVSAChart software – Magni-tech

MAGNI has been ranging between RM 3.80 and RM 4.45 for the past 6 months. There was accumulation of stock around July to August 2016, with Sign Of Strength (green arrow) appearing in the 2^nd week of July.

A relatively low volume but significant break out then took place in September with the appearance of another Sign Of Strength (green arrow), which led to MAGNI trading in a new, higher price range. This rising in price is likely coupled with the positive announcement of latest quarterly.

On 2^nd week of Nov 2016, another Sign Of Strength (green arrow) appeared which suggests some strong hands supporting the stock at around RM 4.05 level. Aggressive investors with longer term view may consider accumulating this stock around support levels of RM 4.05 to RM4.10 or look out for emergence of more Signs Of Strength (green arrow) before taking position.

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