This article first appeared in The Edge Financial Daily on April 11, 2018
Prolexus Bhd
(April 10, 65.5 sen)
Maintain buy with a target price (TP) of 80 sen: Prolexus Bhd is expected to resume its growth in financial year 2019 (FY19) with the completion of its fabric mill in Kluang, Johor by the fourth quarter of 2018. We maintain “buy”, with a TP of 80 sen based on eight times FY19 price-earnings ratio (PER) of closest related peers.
Prolexus is an original equipment manufacturer for major global sports apparel brands such as Nike, Under Armour and Asics, with manufacturing facilities in Batu Pahat, Penang and China, with a total production capacity of 14 million pieces per annum. Under Armour accounts for 30% of its revenue, followed by Nike at 20% and Asics 10%.
Prolexus completed a rights issue back in 2016, raising RM56.8 million for the construction of its first fabric mill in Kluang, Johor, which will help cut cost and reduce reliance on external suppliers, having better control of the supply chain and improving margins. The fabric manufacturing plant is expected to provide synergistic benefits to the existing sports apparel manufacturing process. Current plant utilisation remains satisfactory at between 60% and 70% and is expected to improve with upcoming major sporting events, namely Fifa World Cup 2018 and 2020 Tokyo Olympics.
Prolexus was in a net cash position with RM23.1 million as at Jan 31, 2018, and is expected to recover from a slower FY18 and resume its growth trajectory with double-digit earnings growth for FY19 and FY20, with contributions from the fabric mill. Meanwhile, we expect net dividend yields of 3.2% and 4% over the next two years. — Rakuten Trade Research, April 10