MAGNI: Earnings Plunged

Results Update

Last Thursday (Sep 14), Magni announced its result for QE31/7/2017. Its net profit dropped 49% q-o-q or 17% y-o-y to RM20 million while revenue dropped 2% q-o-q but rose 8% y-o-y to RM294 million.

Revenue dropped y-o-y due to lower Garment revenue which decreased by 0.8% due to unfavorable foreign exchange differences and lower Packaging revenue which dropped 12.7% due to the closure of offset printing packaging business. These were partially offset the higher revenue from the continuing packaging operations which increased by 1.8%.

PBT dropped y-o-y due to lower Garment PBT which decreased by 43.2% mainly due to lower gross profit margin, higher operating expenses and softer revenue; lower Packaging PBT which dipped by 47.9% mainly due to higher raw material costs for corrugated packaging business. In addition, the comparative PBT for the immediate preceding quarter i.e. QE30/4/2017 was inflated by insurance claims (RM0.216 million) and reversal of over provision of business closure costs (RM0.356 million) in QE30/4/2017 by the discontinued packaging operation.

As a result of the sharp drop in profits, Magni cut its dividend to 3.5 sen from 6 or 7 sen in the immediate past 2 quarters. While the dividend cut may conserve its reserve for contingency or for new investment.

Table: Magni's last 8 quarterly results


Graph: Magni's last 42 quarterly results

Valuation

Magni (closed at RM6.16 on Friday) has a trailing PE of 8.6 times (based on last 4 quarters' EPS of 71.39 sen). Albeit the dividend cut, Magni still pays quarterly dividend which totaled 21.5 sen in the past 4 quarters; giving the stock a DY of 3.5%. Overall, Magni is still quite attractively valued.

Technical Outlook

Magni is still in a long-term uptrend, supported by its 10-month EMA line at RM6.00. Below this, Magni may have support from the 20-month EMA line at RM5.00 and then the horizontal line at RM4.50.

Chart 1: Magni's monthly chart as at Sep 15, 2017 (Source: ShareInvestor.com)


Chart 2: Magni's weekly chart as at Sep 15, 2017 (Source: ShareInvestor.com)

Conclusion

Despite the sharp drop in earning and dividend cut, Magni is still a good stock for long-term investment based on attractive valuation. After the sufficient price drop, the stock will be more appealing. The good entry level may be between RM5.00 and RM6.00.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.