Author: itjustabouttheprofit | Publish date: Fri, 3 Jul 2015, 01:14 AM
EPS estimation : (16.12+15.24) x 2
=62.72sen
PE ratio : 11 (same as Prlexus)
Target price : RM6.90
I am here to ANSWER a simple question.
Why MAGNI?
1) Future orders of main customer, NIKE
have increased by 13percents (year-to-year
comparison)
2) Reputable customer and excellence
repayment record
3) Strong currency exchange of US dollar
and lower cost of cotton lead to higher
profit margin
4) Pure cash company with 4% dividend
yield and zero borrowing
5) Lower price earning ratio compared to
peers
Background:
Magni involves in two industries:
1) Packaging - 17% of total sales
2) Garment manufacturing - 83% of total
sales
As the garment manufacturing consists of
83% of total sales of the company, hence I
will focus on the discussion on garment
manufacturing industry
Taken from: http://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download/?name=EA_DS_ATTACHMENTS&id =166298
From annual report 2014 (Page 82, Note 29
Segment Information), we have noticed
that the major customer of the company,
NIKE have contributed RM507million or
77.8% of total sales to the company. Hence
I will also focus on the discussion on
NIKE
Milestone for garment manufacturing:
1) On 1 November 2006, Magni completed
the acquisition of the entire equity stake in
South Island Garment Sdn Bhd.
2) On 31 January 2008, South Island
Garment Sdn Bhd have acquired 5% equity
interest in Viet Tien Garment Join Stock
Corporation for cash consideration of
RM8.37million.
1) Future orders of main customer, NIKE
have increased by 13percents (year-to-year
comparison)
Taken from: http://investors.nike.com/files/doc_financials/2015/q4/FY15-Q4-Combined-NIKEINC-Schedules.pdf
As per schedule above, we can see that there are 2 columns. First column is reported futures orders which iscomparison of future order between 30 Jun 2014 and 30 Jun 2015 using US Dollar rate translated during this period. It shown only 2% increased due to the USD currency had been increased toward others currency of the world after the United States Federal Reserve has called to end quantity easing programme on end of Oct 2014.
But in the second column, it reported futures orders which is comparison of future order between 30 Jun 2014 and 30 Jun 2015 by using currency rate against USD on 30 Jun 2014. It have shown increased in 13%. The main purposes of second column is to shown the grown of future order without taking the impact of appreciation of US dollar.
In other word, the reported futures orders only increased by 2 percents is due to the currency appreciated of US dollars. It does not mean quantity of future orders have been decreased instead it have been increased by 13 percents.
Here is the graph shown on the currency exchange for 1USD for Chinese Renminbi and Euro Dollar:
With the increased in number of future orders by 13 percents, I am sure that it will gave positive impact for Magni.
2) Reputable customer and excellence
repayment record
Taken from: http://investors.nike.com/files/doc_financials/2015/q4/FY15-Q4-Combined-NIKEINC-Schedules.pdf
Balance sheet above shown the balance sheet for their main customer, Nike Inc. As at 31 Mar 2015. cash and equivalents for Nike Inc stood at USD3,852,000,000 and while bank borrowing stood at USD1,186,000,000 borrowing. Hence there will no repayment problem from Nike Inc. as the company have net cash of USD2,666,000,000.
Other than that, Magni have a great record of debt collection from their debtor as well as Nike Inc. As per last quarter trade receivables, we noticed that only RM82million of trade receivables while the total revenue for FY2015 stood at RM716million. By using the trade debtor turnover ratio, we can concluded that the the company able to collect the debt from debtor 42days after the sales have been completed. It is relatively fast compare to other manufacturing company which takes much longer period to collect the debts. Also the company will not faced any issued on bad debt collection. The company able to use their cash flow more efficiently.
3) Strong currency exchange of US dollar
and lower cost of cotton lead to higher
profit margin
F.Y.QuarterRevenue ('000)Profit before Tax ('000)Profit ('000)Profit Attb. to SH ('000)EPS (Cent)DPS (Cent)NAPS
2015-04-30 2015-04-30 176,728 22,045 16,533 16,535 15.24 10.00 2.5100
2015-04-30 2015-01-31 200,376 23,090 17,493 17,492 16.12 5.00 2.4100
2015-04-30 2014-10-31 162,036 10,822 8,003 8,002 7.38 - 2.2500
2015-04-30 2014-07-31 177,240 13,449 10,084 10,084 9.30 - 2.2600
2014-04-30 2014-04-30 162,441 10,705 8,493 8,492 7.83 8.00 -
2014-04-30 2014-01-31 187,072 19,860 14,841 14,842 13.68 5.00 2.1400
2014-04-30 2013-10-31 150,765 12,653 9,477 9,477 8.74 - 2.0000
2014-04-30 2013-07-31 150,995 12,194 9,140 9,139 8.42 - 1.9900
2013-04-30 2013-04-30 136,687 9,940 7,315 7,314 6.74 8.00 -
As quarter result shown above, the company's earning per shares have been skyrocketted for the past 2 quarter. There are two factor which lead to these situation:
a) Strong currency exchange of US dollar
We know that US dollar have been appreciated against ringgit by 10% -20% since Dec 2014. Hence it have increased the sales price of garment to their customer.
b) Decrease in cost of material, cotton
Taken from: http://www.indexmundi.com/commodities/?commodity=cotton&months=60¤cy=myr
As per graph above shown that the cotton month price (in ringgit) have been trading at RM2.66 to RM3.18 per pound between Nov 2013 to July 2014. The price have been decreased to RM2.20 to RM2.66 per pound after Aug 2014 until Jun 2015.
With the increased in sales price and decreased in cost of material. the profit margin of the company will be improved and the profit will be increased.
4) Pure cash company with 4% dividend
yield and zero borrowing
As per 30 April 2015, the company stood at RM69million cash and zero borrowing. The cash almost the same compared to previous year. The extra cash have been used for other investments such as investment in mutual funds and share market to earn extra income. As per FY2015, the company have earned RM4.3million from the appreciation of share price and dividend income from the investment in share market and mutual funds.
For financial year ended 30 April 2015, the company have declared total dividend of 15sen (interim dividend of 5sen on 30/3/2014, final dividend of 3sen and special dividend of 7sen - payment date to be decide later), it made up the company dividend yield at 4% per year.
5) Lower price earning ratio compared to
peers
I will compare some of the important factor to indicate that Magni is still undervalue:
(Using latest four rolling quarter result)
1) The closest competitor, Prlexus is currently trading at PE11 while Magni is currently trading at PE7.79. Magni better
2) Total revenue for Prlexus is currently stood at RM320mil while Magni is currently stood at RM716mil. Magni better
3) Total profit after taxation for Prlexus is currently stood at RM21.5mil while Magni is currently stood at RM52mil. Magni better
4) Profit margin (after taxation) for Prlexus is currently stood at 6.72% while Magni is 7.25%. Magni better
5) Dividend yield for Prlexus is currently stood at 2.38% while Magni is 4%. Magni better
As shown above, Magni have a lower price earning ratio, larger size of business, better profit, more profit margin and more attractive dividend yield compare to Prlexus. Hence I still consider it as undervalue.
Warning: Trade at your own risk!!! Do research before any investment decision!! Happy trading :-)
