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Tuesday, December 18, 2012

Magni- an attractive stock

Background



Magni-Tech Industries Bhd (‘Magni’) is involved in packaging & apparel businesses.

Recent Financial results

For QE31/10/2012, Magni's net profit increased by 23% q-o-q or 16% y-o-y to RM10.3 million while revenue increased by 2.5% q-o-q but declined by 4.1% y-o-y to RM135 million. Bottom-line improved q-o-q mainly attributed to lower operating expenses.



Table: Magni's last 8 quarterly results


Chart 1: Magni's last 15 quarterly results

Financial Position

Magni's financial position as at 31/10/2012 is deemed healthy, with current ratio at 2.6 times and no bank borrowings. Its working capital management is satisfactory, with inventory turnover & debtors' turnover of 37 & 53 days, respectively.

Valuation

Magni (closed at RM1.45 yesterday) is now trading at a PE of 4.8 times (based on last 4 quarters' EPS of 30.46 sen). At this PE, Magni is deemed fairly attractive.

Technical Outlook

Magni is in a gradual uptrend line. Its immediate support is at the horizontal line at RM1.30 & then the uptrend line at RM1.25.


Chart 2: Magni's weekly chart as at Dec 18, 2012_12pm (Source: quickcharts)

Conclusion

Based on good financial performance & position, attractive valuation & good technical outlook, Magni is a good stock for long-term investment.

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, Magni.

5 comments:

For A Better Malaysia said...

Hi Alex.

I have been eyeing Magni for some time now but have not bought due to some concerns, as stated below (data are slightly outdated). Would appreciate your views.

From my newb and most likely flawed point of views, the concerns are :-

(a) extremely low liquidity;

(b) very tightly held shares (top shareholders accounting for more than 70-80%); and

(c) it is not mentioned in its annual reports (at least the 2011 and 2012 ones) that Tan Kok Ping and Tan Poay Seng (2 of the major shareholders and directors) are father-and-son. I only discovered the relationship after doing some 'digging'. I would have thought such a relationship should be clearly stated from the outset. There are a few other Tans on the board and shareholder lists but I didnt bother to 'dig' further to see whether they are related.

Another concern I have is that the Directors' remuneration seems too high.

Profits (group) for FY 2010, 2011 & 2012 were RM16,495m, RM17.258m & RM30.638m respectively. The Directors' remuneration for those years were RM4.83m, RM5.787m & RM8.641m respectively.

Just for comparison (probably not entirely fair but just for some perspective) :-

- PChem for year 2011 the Directors' remuneration (including CEO's pay) was only RM1.788m (profits of RM2b++)

- WTK for 2010 and 2011 the Directors' remuneration was RM3.391m and RM3.239m respectively (profits of RM68.639m and RM31.046m respectively).

Newbie said...

Hi Alex,
How did you derive its fair value?
Regards.

Alex Lu said...

Hi For A Better Malaysia

Thank you for sharing. It is good that you have done your own research into the stock.

Your concerns are valid and they may explain why the stock had only risen timidly. A tightly-held stock with low volume is always a concern for investors, especially big investors who can't exit without a sharp drop in price. A high directors' remuneration is also a concern as this means there is less to be shared with the shareholders.

This has lessen my enthusiasm for the stock but it does not entirely negate the call.

Please continue to share your thoughts on nexttrade.

Alex Lu said...

Hi Newbie

Deciding on fair value of a stock is a tricky business. To me, I will start with a PE range of 10-20 times. For a well-managed company with good growth track record and operating in a stable industry, I may go up to 20 times. Any company that is not so well-managed or operating in a not-so stable industry or little growth track record, I may use a lower PE.

Then, there are other factors to consider, such as the size of the company, etc.

All in all, there is a fair bit of subjectivity involved.

The alternative is to compute the PE and you ask yourself, would the market pay a higher PE for this stock. If you feel that it deserves a higher PE, then the stock is a BUY in your book.

Newbie said...

Thank you for your kind explanation.