Over last week, I received one good news and one bad news. The good news is one of my favourite stock, HAIO, has announced its strong 1Q financial result. However, the bad news is MAGNI’s latest 1Q result is disappointed.

As brief, MAGNI’s PBT has dropped 17.1% and Net Profit has dropped 16.7% when compare to the result in 1Q FY2017. Due to this disappointed result, its stock price also declined 15.6% in one day after the announcement. I also disposed a portion of holdings to lock in some gains.

Many bad news from both externally and internally to the MAGNI, such as:

1. Strengthening of MYR against USD. The appreciation of MYR may cause accounting translation loss and economic risks to the company. Economic risks is the major customer, Nike may switch to other manufacturer when MYR becomes expensive.
2. Rising of labours costs in both Malaysia and Vietnam, caused the depression on profit margin.
3. Shares disposed by one of the major shareholders, PNB.
4. Lower DPS 3.50 sen in the latest 1Q FY2018 (DPS 5.00 sen in 1Q FY2017) .

Despite of those bad news, I am still looking for opportunity to buyback the shares. In Exhibit 1, I have factored in the rising labour costs and the unfavourable FX in the projection FY2018. Currently, my valuation to MAGNI is RM 6.54 based on the PE model 10.7x.

I decided to buyback the shares is because I consider MAGNI is a good company, especially its cash flow generating ability. Further, I believe some potential good news may help to push up the stock price, such as:

1. Two new green and sustainable plants in Vietnam. Although this is still in planning stage, I consider this is a positive news for future growth when the company make the formal announcement later.
2. Special dividends. So far the company has an average dividend payout of 30%. If the company raises its dividend payout ratio rather than putting the money in the money market funds and deposits in banks, investors will come back. Based on its BS in 1Q FY2018, the company can potentially distribute out maximum RM 1.13 as dividends.
3. Shares buyback. The management may consider to buyback the shares in case of the stock price continues to fall significantly.

In my opinion, Current close price RM 6.13 is not a good price to get in. I am waiting for greater bargain to compensate the risk of over concentration on the revenue from Nike.

https://streetanalystblog.wordpress.com/2017/09/23/magni-needs-some-good-news/