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Prolexus Bhd
SHARES of Prolexus (Fundamental: 2.1/3, Valuation: 1.5/3) have done quite well after it was first recommended by InsiderAsia back in November 2014 — its share price has soared 94% to RM2.24 currently. 

We continue to like the company’s efficient and asset-light business model, and believe that it is still undervalued relative to its future growth potential. 

Prolexus is principally engaged in sport apparels contracting manufacturing for established global brands, principally Nike. It has manufacturing facilities in Malaysia and China. End products are destined, mainly, for the US and Europe markets. 

Net profit grew at a CAGR of 46.2%, from RM4 million in FYJul2010 to RM18.5 million in FY14. Over the same period, ROE rose from 11% to 22%. For 9MFY15, revenue increased 13% y-y to RM230.3 million while net profit jumped 12% to RM14.4 million, bolstered by higher apparel sales, economies of scale from advertising and lower taxes.

The company owns a 51.9% stake in HiQ Media, an outdoor LED screen advertising company with about 14 screens nationwide. The unit accounted for 10% of net profit in FY14 and 18% in 9MFY15. 

The apparels business remains its focus for growth. Prolexus is one of Nike’s major suppliers and has been working with the sports giant since 1987. 

To cater to Nike’s fast-growing sales, it is expanding capacity — by adding another shift at the local plant and doubling capacity in China. The new plant is slated for completion by 4Q15.

The company is prudently managed and has net cash of RM18.2 million. 

Valuations are attractive relative to its prospective double-digit growth, with trailing 12-month P/E of only 11.9 times. 

Prolexus does not have a dividend policy but payout has been rising, from 8% in FY12 to 15% in FY14 as earnings expand. Dividends totalled 3.5 sen in FY14, giving a yield of 1.5%. 

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This article first appeared in The Edge Financial Daily, on July 22, 2015.

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