- Prlexus is currently operating in near maximum capacity.
- Prlexus's customers are expecting rapid growth ahead and requests Prlexus "to be ready"
- They are planning to ramp-up the production capacity of both Malaysia and China plants in this year to fill up the expected increase in sales orders from its major customers and international brands.
- Malaysia's plant: to increase number of sewing operators to 1,400 from 1,000, which will potentially increase the production capacity to 1 million pieces of garment/month or additional sales of RM80mil
- China's plant: to double the operation capacity. Target capex is at RM8mil this year.
- Expect China's operation to contribute over 50% of group sales in 5 years time.
- They are actively looking to set up production factories in Asean region, which will start this year
Optimistic growth expectation from the existing customers and Prlexus's expansion plan shows that the group will sustain its growth moving forward. Prlexus's operation efficiency and margins has peaked since its operation is nearly fully utilized. Future profit growth is expected to be driven by increase in sales order provided production expansion can be done as expected.
With the management guideline, I have re-performed the valuation using Sum-of-part (SOP) methods and set my updated target price at RM1.82 (20% upside) and is optimistic on the group long-term perspective based on (1) indicated higher demands from its existing customers and (2) proven growth track record in the past 5 years
Key Risks:
1. Loss of customers due to unable to meet rising order demand
2. Loss of major customer - 2 major customers contributed to over 85% of the group sales
3. Slow or delayed in capacity expansion. Expansion may be challenged by difficulties in recruiting sawing operators.
4. Fall in operation efficiency and margin caused by new operations
Required return was obtained with CAPM method. (refer to my previous post)
