For demonstration purpose

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MAGNI-TECH INDUSTRIES BERHAD
By Ooi Say Yong
Updated: 22 December 2019
Recommendation: BUY
12 months Target
Price:
RM2.80
Current Price: RM 2.55
Expected Dividend: 3.8%
Expected Return: 9.8%
Market Capital(RM’m): 1,107
No. Shares(in’m): 433.9
Sector: Textile
Stock code: 7087
Share Price Performance (Last 12 months)
Major Shareholders:
Tan Poay Seng (TPS) 23.46%
Tan Sri Tan Kok Ping
(TKP)
19.26%*
Siyasi Sdn Bhd 6.65%
(*including deemed interest)
Company Background:
Magni-Tech Industries Berhad is a Malaysia based
investment holding company that is also engaged
in the provision of management services. The
Company operates in two business segments:
manufacturing of garments and packaging
materials. Apparel sales make up more than 90%
of group revenue. More than 90% of its apparel
sales are derived from Nike Inc. The group has an
annual capacity of 35.6 million pieces at a
utilisation rate of 70% and plans to increase its
capacity to 50 million pieces by 2020. The
Company markets its products in Malaysia,
Vietnam, the United States, Europe, China,
Canada, Thailand, Indonesia and Japan.
Exhibit1: Labour costs in Vietnam (VND)
Key Financial Indicators:
FY April 2016 2017 2018 2019
Gross Profit 17.8% 17.8% 17.2% 17.6%
Net Profit 9.6% 10.5% 8.5% 9.6%
ROE 25.4% 29.4% 19.7% 19.4%
Current ratio 4.15 4.73 5.36 7.62
Quick ratio 2.48 2.64 2.64 4.74
D/E No
debt
No
debt
No
debt
No
debt
SUMMARY
Buy recommendation on this stock is maintained with
conservative target price RM2.80. However, I believe share
price can go beyond RM2.80 due to the merits stated as per
below. In latest quarterly report 2Q20, Magni has reported
17.8% YoY increase in Revenue and 28.7% YoY increase in
net profit. Such growth in Revenue and Net Profit are
contributed by higher order received in garment segment.
MERIT
• Tokyo Olympics and UEFA European
Championship. These sport events in 2020 are
expected to boost demand for sportwear.
• Expansion. Magni has completed 2-phase expansion
plan by September 2019. The manufacturing capacity
has been increased from 37m pieces p.a. previously to
45m pieces p.a. currently. It also plan to increase the
capacity to 50m p.a. in 2020.
• Beneficiary of Trade war. Demand of garment may
switch to ASEAN countries in the midst of trade wars
between US and China.
• Strong Financial Position. Magni has clean balance
(no debt or net cash), posting stable growth in earnings
and dividend and constantly pay dividend.
• Directors acquisition of share. In between August
2019 and August 2018, TPS and TKP has increased
shareholdings from 34.9m to 38.1m and from 30.3m to
31.3m respectively. I believe the acquisition is reflecting
positive or even better prospect ahead.
DEMERIT
• Weakening USD/MYR. Magni has derived most of its
Revenue denominated in USD, although most of the
costs are also denominated in USD, the weakening of
USD definitely has some -ve impact on the earnings.
• Rising Labour costs. Labour costs in Vietnam has
been increased(exhibit 1) due to increase of investment
from China to the region. At Malaysia side, minimum
wages would be increased to RM1,200 from RM1,100
previously.
• One single and the largest customer. Magni has been
rely on Nike Inc in the past year. I believe it would be still
the same in the foreseen future.

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KEY FINANCIAL DATA
INCOME STATEMENTS
FY April (RM’m) 2018A 2019A 2020F 2021F 2022F
Revenue 1,080 1,073 1,284 1,40 1,465
Gross Profit 186 188 226 247 258
Operating Profit 109 120 144 158 165
EBIT 120 134 158 172 179
PBT 119 133 157 171 179
Income tax (28) (31) (36) (39) (41)
PAT 91 103 122 132 138
Profit to Shareholders 91 103 122 132 138
EPS (sens) 0.21 0.24 0.28 0.30 0.32
BALANCE SHEET
FY April (RM’m) 2018A 2019A 2020F 2021F 2022F
PPE 63 63 65 66 67
Cash & Bank Balance 50 60 105 164 239
Trade and Other Receivables 98 113 133 145 151
Other Assets 316 368 389 409 419
Total Assets 527 604 692 784 876
Trade and Other Payables 53 65 73 79 81
Borrowings - - - - -
Deferred Tax 6 6 6 6 6
Other Liabilities 3 4 4 4 5
Total Liabilities 62 75 83 89 92
Shareholders’ Equity 465 530 609 694 784
NCI 0 0 0 0 0
Total Equity 465 530 609 694 784
Total Equity and Liabilities 527 604 692 784 876
CASH FLOWS
FY April (RM’m) 2018A 2019A 2020F 2021F 2022F
PBT 119 133 157 171 179
Depreciation 6 7 7 8 9
Operating CF 102 53 87 106 123
Capex 13 7 9 10 10
Free cash flow 90 46 79 96 113
Investing CF (69) (6) 1 (0) (1)
Financing CF (36) (38) (43) (46) (48)
Net CF (3) 10 45 59 74
ASSUMPTIONS TO THE FINANCIAL MODELING:
Income statements:
1. Vertical Analysis
(*The blue fonts are the metrics used for forecast)

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2. Revenue segment
Garments: I forecast garment has higher sales in 2020 due to increase of production and demand.
Packaging: I expect this segment is posting reducing growth. Not much discussion from management on
this segment
3. Interest Income
Interest income mainly represents interest income from short term placements and fixed deposits with
licensed banks. (source: AR2019)
The Interest income is forecasted at 4% for average and conservative purpose.
4. Dividend Income
Dividend income is derived from investment securities:
- Shares and unit trusts quoted in Malaysia
- Unquoted shares outside Malaysia
(source: AR2019)
The Dividend income is forecasted at 16.6% and remain constant for 4 years. Moreover the dividend rate
has been in increasing, for conservative purpose, we only use 16.6%.

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5. Finance costs
Finance costs comprise of only bank and commission charges incurred. (source: AR2019)
The Finance costs are forecasted at 0.0695% of the Purchase for conservative purpose.
6. Depreciation Expenses
*Please refers to the section in Balance sheets.
Balance Sheets:
1. Working capital
The forecasts are using data below:

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2. Capex
The capex is forecasted at 0.7% of Revenue. And then the amount of total forecasted capex is
proportioned with assets which has additions in capex in past 4 financial years.
3. Depreciation expenses
4. Dividend Payout
The Directors seek to maintain a dividend payout ratio of about 35% subject to the Group’s financial
performance, capex requirement and cash flow position. The Company has not adopted any dividend
policy. (source: AR2019)
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