Is there a decoupling of business turnover between MAGNI and NIKE?

HarryTeo wrote a column · Sep 12, 2023 10:33

Is there a decoupling of business turnover between MAGNI and NIKE?

$Nike (NKE.US)$ When we talk about MAGNI, we must think of its excessive dependence on NIKE. In FY2023, the single major customer, NIKE, contributed 88% of the turnover, a very astonishing proportion. However, in the past two years, MAGNI's trend has started to decouple from NIKE. After the pandemic, NIKE has consecutively hit historic highs in turnover for 3 years, with a growth of 37% from the bottom of FY2020.

On the other hand, in the past 3 years, MAGNI's turnover has been stuck below the RM1.23 billion mark. Over the past 10 years, MAGNI has been growing together with NIKE. Recently, there has been a stagnation phenomenon, which we speculate is due to NIKE keeping its orders to MAGNI unchanged in recent years, with additional orders being transferred to other country peers to diversify potential supply chain risks.

The data from MAGNI's annual report in the peak period shows that the net income reached RM127.186 million (with a significant portion coming from Other Income like land sales), but in the latest financial year, it fell to RM95.371 million.

Despite a 4.8% decrease in turnover in the latest quarter, MAGNI delivered a new high of RM32.726 million in net income for the 10 quarters, growing by 36.2% annually, significantly increasing the Profit Margin performance.

The main reason for the margin improvement is due to a 6.9% decrease in annual operating costs, speculated to be from a decline in raw material and transportation costs, with reduced epidemic costs. In addition, the high cash reserve of RM462.8 million brings in RM6 million in interest and dividend income, while the appreciation of the US dollar brings RM3.376 million in forex gains.

Assuming Q1 performance as the base, with the support of the strengthening US dollar, MAGNI's profit is expected to grow slightly in FY2024. MAGNI has not made any large CAPEX investments in recent years, possibly as we speculate, due to NIKE not providing more orders.

In the absence of CAPEX, MAGNI achieved a historical high of RM462.815 million in the latest quarter, advancing at an average annual growth rate of RM45 million over the past 7 years. The company's average Operating Cash Flow over the last 5 years is RM74 million, with a significant surplus remaining after deducting CAPEX and DIVIDEND payments.

For MAGNI to break out of its current predicament, the only way is for NIKE to increase orders for them; otherwise, revenue will continue to stagnate at the current level. Today, the stock price broke the 52-week high mainly due to earnings growth and increased dividends. If profits cannot surpass previous peaks, it will be difficult for the stock price to surge.

Looking forward to MAGNI obtaining more new orders or customers, continuing to create value for shareholders, and bringing growth to the company. Let's strive together.

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HarryTeo

投资座右铭：价值为主，技术为辅，心态之上在股市拥有超过10年的经验，主要是通过科技以及制造出口领域累积财富。

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