- 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)
Yes, i generally agree with ur statement.
ReplyDeleteAlthough Pr will be benefitted from weak ringgit in near term, but in mid-term the gain will be normalized as big brands usually hv cost saving/hike transfer mechanism, certain cost saving will be transferred to the big brands, so forex gain is nothing too much to shout out
The most important is biz growth, as PR major is in US market and US enjoying strong growth (not recovering), the biz growth of prospect of PRis strong
Y u downward TP a lot?
ReplyDeleteI really dun like them puchase land at this point of time, but luckily just 17m
better than Magni has 20m of quoted investment
Now im considering to switch Magni to PR
The TP is much lower than my previous post because (1) i change the valuation method to DCF from PE. The former method is better in calculating the intrinsic value of the company and have a long-term view compare to PE method which only look few years ahead. (2) My previous projection has unrealistically assume Prlexus can expand its capacity to meet the order growth and considering Prlexus can ripe most of the forex gain benefit. After more information from the management, my sales projection is based on capacity projection.
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