Magna International Inc. (TSX: MG) mobility technology company and has 342 manufacturing operations and 91 product development, engineering, and sales centres and has operations across more than 27 countries.

Key Updates:

• Building Next-Generation Advanced Driver Assistance System: Recently, the company collaborated with Blackberry Limited wherein the later would provide various integrated Advanced Driver Assistance Systems (ADAS) solutions along with professional engineering services for system-level integration, performance optimization, and solution validation. This is commendable and goes in-line with upcoming requirements of the Original Equipment Manufacturers (OEMs). The management is bullish regarding the future prospects of ADAS solutions in the coming years.

• Healthy Balance-sheet: The company reported a prudent capital management and reported a lower debt to equity ratio of 0.31x in Q1FY22, as compared to the industry median of 0.65x. This is impressive and would provide higher financial flexibility. Moreover, the company reported its long-term debt to total capital of 22.3% in Q1FY22, lower than the industry median of 25.3%. This is expected to provide lower balance sheet risks.

• Higher income from Seating Systems segment: Despite the current logistics disruption and tepid global scenario, the company reported a 6% y-o-y jump in Seating Systems segment at USD 1,376 million. This was supported by new launches from the OEMs like Jeep Grand Cherokee and Grand Cherokee L, BYD Qin Plus and Skoda Fabia which resulted in higher demand dynamics. With a gradual revival in the macros demand, we expect the above segment to deliver higher sales volumes in the coming days.

Source: Company Reports

Risk Associated with the Business:

The product of the company requires constant innovations and upgradations in order to remain competitive. Hence, the company might witness higher research and development costs, which might take a toll on the margin and cash flows.

Q1FY22 Financial Highlights:

Q1FY22 Income Statement Highlights (Source: Company Report)

• MG announces its quarterly result, wherein the company posted revenue of USD 9.6 million v/s USD 10.1 million in pcp. The slide was primarily attributable to a lower global light vehicle production and assembly volumes which resulted to a weak order book for the company.
• Cost of goods sold, and selling-general and administrative expense stood lower than the previous corresponding period due to corresponding decline in revenue. Income from operations before income taxes stood at USD 420 million v/s USD 805 million in pcp.
• The company reported net income of USD 379 million vs USD 622 million in pcp due to lower Income from operations before income taxes, partially offset by lower income tax expenses.
  

  Valuation Methodology (Illustrative): EV to Sales based

 Analysis by Kalkine Group 

Stock Recommendation:

Over the years, the company has constantly upgraded its products to meet the expectations of its client’s. Hence, this has resulted in better client management and customer satisfaction. We believe, demand for light vehicle is likely to grow in the coming years, supported by improved demand dynamics and would benefit the company’s sales volumes.

We have valued the stock using the EV to Sales based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Borgwarner Inc, Lear Corp etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the last closing price of CAD 80.35 on May 19, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on May 19, 2022). Analysis by Kalkine Group

The reference data has been partly sourced from REFINITV

 Technical Analysis Summary

Disclaimer

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