KUALA LUMPUR (Oct 17): AmInvestment IB Research has initiated coverage on Prolexus Bhd at RM1.57 with a "buy" rating and fair value of RM1.84, pegged to FY17 fully diluted PE of 12x.

Prolexus is an original equipment manufacturer (OEM) company in Malaysia that focuses its business on manufacturing and selling sportswear, with factories across Malaysia and in China.

The research house has projected Prolexus to be traded at a premium due to its superior margins and higher profit growth amid the company's plans to expand their business in Vietnam.

"We are positive on Prolexus' expansion plans in Vietnam as this will boost its production capacity to meet the growing demand for premium athletic wear," explained AmInvestment.

New-knitted fabric, which is an important material in apparel production, will now be produced in-house and no longer sourced externally, thereby saving production costs and improving Prolexus' net margin. A portion of the fabrics are expected to be sold to external parties, which will generate a source of potential future profit for the company.

"We estimate Prolexus' revenue to grow by 14% to RM457 million in FY17 underpinned by strong orders from key clients such as Nike and Under Armour," the firm commented.

Prolexus' earnings are expected to rise by as much as 13% from RM32 million in FY17 to RM36 million in FY18, and by 14% to RM41 million in FY19, supported by an increase in gross sales and revenue. Growth of sales for FY18 is expected to be aided by the sale of knitted fabrics.

"To be conservative, we have assumed EBIT margins to be flat at 9.5% in FY17 and FY18 compared with 10% in FY16. We forecast Prolexus' gross dividend per share at 3.7 sen in FY17, which implies a yield of 2.3%," added the firm.

AmInvestment expect Prolexus' balance sheet to remain healthy despite their plans for expansion.

At 10.43am, Prolexus was flat at RM1.57 with 77,700 shares done. It has a market capitalisation of RM267.78 million.