Prolexus shares fall on earnings drop

PETALING JAYA: Prolexus Bhd’s share price fell 15 sen or 9.68% yesterday following a 54% plunge in its net profit for the third quarter ended April 30, 2017.
The stock ended the day at RM1.40, bringing with it a market capitalisation of RM250.48 million with some 2.64 million shares traded.
AmInvestment Bank Bhd said in a research note yesterday that it had downgraded its recommendation on Prolexus to “hold” with a lower fair value of RM1.36 a share, from RM1.61 a share previously following the steep decline in its third-quarter earnings.
Its analyst Philip Wong said the earnings shortfall was due to softer-than-expected top line growth as sales for the quarter declined 15.4% year-on-year.
He said this stemmed from both its apparel segments as the advertising segment saw marginal growth, adding the top line weakness came in spite of a healthy top line growth by its primary client, Nike.
Prolexus’ net profit plunged 54% to RM1.6 million in the third quarter, compared with RM3.45 million in the same period last year.
For the nine months period, its net profit fell 14% to RM15.7 million, against RM18.2 million in the same period last year, as revenue declined 7% to RM258.1 million from RM277.5 million previously.
Wong said the earnings came in below the research house earnings estimates at 50%, noting the nine-month earnings typically contribute 60-65% to its full-year earnings.
“We take this opportunity to further cut our margin and growth assumptions to better reflect Prolexus’ prospects. Factoring in changes to our assumptions, we cut our FY17/18F earnings by 15%/3%,” he noted.
He said among the key risks to its forecast include delays in the group’s Vietnamese and Kluang expansions; further top line slowdown; and higher-than-expected start-up costs.
Meanwhile, he said the group is expected to complete its double plant expansion in FY18. Specifically, he said its Vietnam plant and Kluang, Johor fabric mill will commence operations in Q1’FY18 and Q2’FY18 respectively.