Prlexus: A Sharper-than-normal Drop In Revenue

Results Update

For QE31/10/2016, Prlexus's net profit dropped 35% q-o-q or 17% y-o-y to RM6.4 million on the back of lower revenue which dropped 30% q-o-q or 16% y-o-y to RM88 million. Overall revenue dropped q-o-q due to 31.7% q-o-q drop in revenue from the apparel division from RM123.3 million achieved in QE31/7/2016 to RM84.2 million in QE31/10/2016. Normally Prlexus's revenue from apparel division dropped in QE October 30. However, the drop for this financial year is worse than last financial year when revenue from apparel dropped by 13.8% from RM117.9 million to RM101.6 million. Nevertheless, the company expects its performance for the forthcoming quarters to remain stable. In fact, it had a Rights Issue to raise RM56 million in October where the bulk of the proceed will be used to build a fabric mill in Vietnam costing RM55.3 million. This mill is expected to be ready by June 2018.

  
Table: Prlexus's last 8 quarterly results


Graph: Prlexus's last 27 quarterly results

Valuation

Prlexus (closed at RM1.50 last Friday) is now trading at a PE of 9.2 times (based on last 4 quarters' EPS of 16.25 sen). At this PER, Prlexus is deemed fairly valued. [Note: Prlexus was trading at RM1.41 as at 9.15am.]

Technical Outlook

Prlexus was in a long-term uptrend, which peaked at RM1.90 in 2015. Now it is a consolidation phase.


Chart 1: Prlexus's monthly chart as at Dec 16, 2016 (Source: ShareInvestor)

In the consolidation phase, Prlexus pulled back to the support from the horizontal line at RM1.40 and momentarily tested the horizontal line at RM1.30. IPrlexus may trade within a band between the support at RM1.30/1.40 & the resistance at RM1.55/1.65 for the next few weeks/months until the revenue & profits swing back in the next upcycle.
  

Chart 2: Prlexus's weekly chart as at Dec 16, 2016 (Source: ShareInvestor)

Conclusion

Based on good financial performance (albeit poorer 1Q17 result) and fair valuation, Prlexus is rated a HOLD.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.