MAGNI: Stronger-Than-Expected Earnings Driven by Operational Efficiencies, Target Price Sees Significant Boost

A recent investment bank research report highlights a robust financial performance, with the company’s core net profit for the second quarter of fiscal year 2026 (2QFY26) rising by 1% year-on-year (YoY) to RM32.1 million. This positive outcome brings the half-year core net profit to RM70 million, impressively accounting for 56% of the full-year forecast and thereby exceeding analyst expectations.

This stronger-than-anticipated performance was achieved despite a marginal decline in overall revenue, which fell by 1.1% YoY to RM347 million. The softer revenue was primarily attributed to subdued consumer spending impacting sales in both the garment and packaging segments.

Key Drivers of Profitability

The improvement in core net profit was largely propelled by the resilient performance of the garment manufacturing segment. Despite facing lower sales volumes, the segment’s pre-tax profit (PBT) recorded a significant increase of 23.2% YoY. This boost in profitability was mainly due to higher net foreign exchange gains, which contributed RM5.9 million in the current period, a notable turnaround from a net loss of RM5.9 million in the previous corresponding period. Better-than-expected sales from the garment segment also played a crucial role in the company’s first-half financial outperformance.

Navigating Market Challenges

Despite the positive quarterly results, analysts maintain a cautious near-term outlook, primarily due to continued soft demand for sportswear apparel. Rising living costs are expected to keep consumer spending subdued, posing ongoing challenges. Operationally, the company faces potential headwinds from increasing labor costs, particularly in Vietnam, where minimum wages are projected to rise by an average of 7% in 2026. Additionally, Vietnamese exports to the US are subject to tariffs of up to 20%, which could impact the company’s competitive positioning against other sportswear suppliers.

Optimistic Future Projections

Looking ahead, the company is poised for potentially better results in 3QFY26, historically a stronger quarter. This is attributed to higher demand for its specialized outerwear and woven sportswear offerings during the autumn and winter seasons. Furthermore, the company may benefit from the re-routing of Chinese exports to Vietnam. Reflecting these positive developments and the better-than-expected first-half performance, analysts have revised their FY26-28F garment segment sales forecasts upwards by an average of 3%. Given the robust earnings and optimistic outlook, market observers are indicating a positive investment stance, with an upward adjustment in target price.