Is the turnover of MAGNI and NIKE decoupled?
$Nike(NKE.US$ When we talk about MAGNI, we think of it relying too much on NIKE. FY's single major customer, NIKE, contributed 88% of revenue in 2023, a remarkable proportion. However, in the past two years, the trend between MAGNI and NIKE began to decouple. After the pandemic, NIKE's turnover broke through record highs for 3 consecutive years, growing 37% from the bottom of FY2020.
On the other hand, MAGNI's turnover has been bottlenecked for the past 3 years and has not been able to break through the RM1.23 Bil mark. Over the past 10 years, MAGNI's turnover has continued to grow along with NIKE. The recent stagnation, we presume, is due to the fact that orders given by NIKE to MAGNI in recent years have remained unchanged, and additional orders have been transferred to peers in other countries to diversify the potential risks in the supply chain.
The figure above is an excerpt from MAGNI's annual report. At its peak, net profit reached RM127.186 mil (owning a large sum of money is like selling land), but it fell to RM95.371 mil in the latest fiscal year.
With sales falling 4.8% in the latest quarter, MAGNI handed over a new high of RM32.726 mil net profit for the 10th quarter. Profit Margin, which grew by 36.2% year over year, increased quite a bit.
The increase in margin is mainly due to a 6.9% decrease in the company's operating costs over the year. It is estimated that raw materials and transportation costs have declined, and the cost of epidemic prevention has also been reduced. In addition, up to RM462.8 mil of cash reserves brought RM6 mils of interest and dividend income, and the rise in the US dollar brought foreign exchange profits of RM3.376 mil.
The increase in margin is mainly due to a 6.9% decrease in the company's operating costs over the year. It is estimated that raw materials and transportation costs have declined, and the cost of epidemic prevention has also been reduced. In addition, up to RM462.8 mil of cash reserves brought RM6 mils of interest and dividend income, and the rise in the US dollar brought foreign exchange profits of RM3.376 mil.
Assuming that Q1 results are used as a benchmark, MAGNI's profit is expected to increase slightly in FY2024 with the support of a higher US dollar. MAGNI hasn't made any major CAPEX in recent years, and as we have speculated, NIKE has not placed more orders.
In the absence of CAPEX, MAGNI reached a record high of RM462.815 mi in the last quarter, and has been growing at an average rate of RM45 mil every year for the past 7 years or more. The company's average operating cash flow over the past 5 years is RM74 mil. After deducting CAPEX and DIVIDEND, there is still quite a bit of leftover food left.
MAGNI wants to break through the current dilemma. The only way is for NIKE to increase orders to them, otherwise the turnover will stay at the current level. Today's stock price broke through a 52-week high, mainly due to increased performance and increased dividends. Assuming that profits cannot break through the previous peak, it is difficult for stock prices to explode.
We expect MAGNI to get more new orders or customers, continue to create value for shareholders, and let growth come to the company. Mutual encouragement.
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