MAGNI-TECH Industries Bhd has become the second Bursa Malaysia-listed company after Poh Huat Resources Holdings Bhd to be subject to production halt in their Vietnamese operations in compliance with the government’s directive to close all non-essential businesses to contain the spread of COVID-19 in the country.
While the production interruption is expected to cause delay in shipments, PublicInvest Research opined that it will not have a material impact on Magni-Tech’s earnings as the group is currently in the midst of discussing with its customers to reschedule delivery dates.
“In addition, should the need arises, we believe Magni will be able to increase its production via extended shifts upon re-commencement,” analyst Wong Ling Ling pointed out in a company update.
“Nevertheless, we are adjusting our earnings estimates for FY2022F downwards by 7% as we are taking a more conservative approach by assuming a one-month closure of its production facilities.”
Given such measure, PublicInvest Researh has lowered its sum-of-parts (SOP)-based target price of Magni-Tech to RM2.95 (from RM3 previously) while maintaining its “outperform” call on Magni-Tech.
“We are still positive on Magni-Tech’s long term outlook, driven by the growing awareness about healthcare and fitness which would likely increase demand for sportswear,” added the research house.
On July 16, the Vietnamese Government has ordered the implementation of Directive No.16, whereby non-essential businesses are required to close in order to contain the spread of COVID-19 in 16 southern provinces of Vietnam.
Barring any unforeseen circumstances, manufacturing facilities are expected to be closed for 14 days under the directive.
As for Poh Huat, PublicInvest Research expects impact on the Muar-based home and office furniture manufacturer’s earnings to be minimal given the group has certain amount of ready inventory to meet certain orders.
“In addition, should the need arises, Poh Huat will be able to increase its production with extended shifts upon re-commencement,” noted the research house.
“We estimate that for every two weeks of closure, Poh Huat’s earnings would fall by circa 2%. Note that Vietnam’s operations contributes circa 55% of the group’s total sales in FY2020.”
All-in-all, PublicInvest Research retained its “outperform” call on Poh Huat with a target price of RM2.20.
At 2.33 pm, Magni-Tech was down 4 sen or 1.77% to RM2.22 with 1.06 million shares traded while Poh Huat was up 2 sen or 1.5% to RM1.35 with 123,400 shares traded. – July 23, 2021
Photos credit: Move to Asia and Gold Garment
