Magni-Tech
is one of the counters that catches my heavy attention. Aside of playing its
role as packaging business, the group further ventures into garment
manufacturing industry as well. A combination of both decreases the risk of company
from enduring too much risk. Looking in deeper, packaging business has
accounted for 20% of the group’s revenue where most of the businesses’ clients
are venturing in non-cyclical business such as food, healthcare and beverage.
Thus, it ensures that the company will generate a portion of steady revenue. As
for the garment manufacturer segment, most of its revenue is generated from
export markets. Different from other garment manufacturer, Magni-Tech doesn’t
emphasize on marketing and building the brand of its product. Instead, it fill
up orders for garment trading companies who wish to outsource their production
line. Thus, Magni-Tech itself is more on business to business transactions. With
an average annual capital expenditure of RM5 million(it is barely about 1% of
the total revenue), the amount is minimal enough as it is spent for increasing
the company’s operation efficiency rather than continuous innovation for
survival purpose which is a good thing.
As
the company generates big amount of its revenue overseas, this exposes the
company to a very high foreign exchange loss. ( I don’t do the Maths but based
on news about Malaysia Ringgit’s depreciation in 2013& 2014 2nd
quarter, it is scary enough to estimate it.) Also, instead of the company’s ability
to cushion its impact in case of global financial crises, its garments sectors
are still depending on the international market on a large scale. Finally, its
vulnerability is further defined by its holding of investment securities (not subsidiary
and associate, just mere investment purpose) is worth a whopping RM22 million
which is about 25% of its total fixed assets. I’m not saying the company is a
speculator, but with such an amount of investment with the company’s nature (as
garment& package manufacturer and trader), the risk is there.
With
its 10 years operating cash flow, things are looking good as the company
undergoes a healthy upward trend. Returns on asset and equities surpass the
bench mark of 7 and 15% respectively. For 6 consecutive years, no drawdowns of
loan have been made (This is remarkable as it includes 2008& 2009). Up to
date, no short term and long term loans are recorded in the company’s balance
sheet. What’s more is the company cash reserve is positioned at RM50 million
(as at 2013 April 30). It is currently priced at RM2.70, compared to its intrinsic
value of RM2.4( I set the margin of safety 25% for the risk I’ve mentioned). It
is slightly overprice but still itis a counter full of potential.
Stock: MAGNI Code: 7087
Stock: MAGNI Code: 7087
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