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Monday, 28 December 2015

Value Stock No. 1: Magni Tech Industries Bhd

Dear fellow traders, 

For 2016, I will be sharing some fundamentally sound counters with upside growth progressively through out the next few months. These are just a few of my humble highlights (not recommendation), feel free to have some intellectual discourse on this. To join my telegram channel :

Value Stock No. 1: Magni Tech Industries Bhd (FV RM5.40)

Quarterly Results (2Q) of Magni announced last week was mind blowing. Magni achieved record quarterly results with a jump of 2.7 times EPS from 7.38 sens to 19.94 sens. It is amazing because although many already knew good results was on the way, most were delighted to know there was special dividend of 3 sens on top of the 5 sens interim dividend. Of course, Magni as a garment manufacturer is a strong beneficiary of the export theme. Weak MYR has allowed Magni to achieve supernormal profit margins. However, the key to their continuing profitability is their tie up with Nike. Look below:

  • Orders for the Nike brand for the next four months rose 20 percent, excluding the effects of currency. Analysts expected a 13.6 percent gain.
  • Net income increased 20 percent to $785 million.
  • Sales rose 4.1 percent to $7.69 billion. Analysts estimated $7.81 billion.
  • Gross margin widened 0.5 percentage point to 45.6 percent. 

Most export counters has shot up and the price has ran substantially. Magni was among those that went up a lot and even had a bonus. Yet, I chose to put money in Magni because of the increase in profit comes from beyond just the profit margin. Their revenue is also growing which to me shows that even if the share price has went up, there is still more room as it is not only a profit margin play. If you believe in the potential growth of Nike, then dont hesistate to jump in.

Against its peer, Prolexus which is trading at 11.5x PE, Magni is currently trading at 10x at the closing price of RM4.49 Wednesday. I am confident the next Magni is able to maintain their EPS for the next 2Q due to festive seasons cycle as well as the impending Olympic 2016 which will boost sales for Nike sporting products. 

The current EPS stands at 22.86 sens for 2 quarters. Taking a forward annualise earnings for 4 quarters amounts to 45.72 sens. At PE 11.5x, the fair value for Magni should be RM5.25 and at PE 14x, the fair value would be RM6.40. In addition, there is also a dividend of 8 sens declared. Conservative individuals can consider multiplying a 10-20% discount. As such, I raise the multiple to x12 and conservatively forecast the full year 2016 EPS at 45 sens, this would bring the FV to RM5.40 which in my opinion is reasonable.

Food for thought: Merry Christmas and Happy Holidays to all. May good fortune come your way!

Disclaimer: This is not a recommendation to trade. It is merely the expression of the author's personal opinion and shall not be held responsbile for potential gains or losses executed by readers.