Prolexus Berhad (“Prlexus”), the apparel manufacturer that caught investors’ attention when they released their ProXMask90 reusable face mask to the market in response to Covid19 pandemic. Recently, they also got their ProXMask registered with the US Food and Drug Administration (FDA) looking to export their facemask to the US market as US currently has the highest rate of Covid19 cases in the world.
This well thought move has turned out amazingly for Prlexus as they broke their own record with an all time high PAT of RM23.88mil from a recorded revenue of RM97.9mil in their last quarter, which was the Quarter 4, 31 July 2020.
Comparing with corresponding quarter of the preceding financial year, even though PBT have improved by 201%, their revenue had actually dropped by 12.5%. As explained in the report, the lower revenue was mainly due to the lower delivery of apparel orders in that quarter due to partial factory shutdown as a result of the MCO in Malaysia. However, the decline in revenue is mitigated by sales of fabric mask which yields higher profit margin. This explains why its PBT had managed to improve by 201%.
Given that Covid19 situation is still serious everywhere with US having averagely 200,000 new cases everyday, everybody is looking forward to see how Prlexus will perform in their next quarter. And here we are, Prlexus’s Q1FY21 quarter result has just been released today (16/12/2020).
Comparing with last year’s result, we can see that Prlexus’s operating profit and EPS have improved by 321% and 679% respectively which is impressive. Except for its Revenue which has decreased by 14.4%, same scenario as the previous quarter (mentioned above). This is explained in the report with the following:
“The lower revenue is mainly due to lower sales of apparels in the current quarter. However, the decline in revenue is mitigated by sales of fabric mask in the current quarter.”
From this, we can conclude that its core business – the sales of apparels business is actually declining. The recent excellent results seen in their latest quarter results are mainly supported by its newly launched reusable face mask which commands high profit margins. So the right question we should be asking will be: is the sale of their reusable face mask sustainable? Let’s take a deeper look.
Comparing with preceding quarter, we see that their Revenue and PBT have both decreased by 14.3% and 31.5% respestively! According to the report, the significant drop in the PBT is mainly due to the decrease in average selling price of fabric mask in the current quarter. Again, the decrease in revenue is due to lower sales of apparels in the current quarter (August to October). This paragraph should sound alarming to you.
Looking into its past few years performance, we can obviously see that their performance have been declining since 2016 until today. Prlexus declining’s apparel business has always been known to investors, which explains the fall of its share price from the high of RM2 (end of November 2015) to the lowest of RM0.40 (July 2019). Its share price started to gain traction this year due to their reusable face mask which deemed to be highly profitable during a pandemic the world is currently facing.
Even though Prlexus is a net cash company with commendable amount of cash balances, its core business (sales of apparels) has been declining for the past few years.
It has been a long dark tunnel until the moment they switch their strategy to sell its ProXMask reusable face mask in response of the Covid19 which everyone thought could be the seeing light at the end of the tunnel. As a result, they have made a record breaking Profit After Tax of RM23.88mil during their Q4, 31 July 2020.
Since then, Prlexus share price has been fluctuating around RM1.50 with really low volume since it fell from its recent peak of RM1.95. Perhaps, most of the investors choose to stay on the side line while waiting for its latest quarter result.
Based on its latest quarter results, Prlexus’s revenue and PAT have both decreased in a notable amount. According to the management, this is due to the decrease in average selling price of fabric mask and lower sales of apparels in the current quarter. This does not sound good because when covid19 situation is still so serious globally, its average selling price should be increasing (as we have seen in the glove industry).
I can’t help but to worry about the following points:
- Decreasing average selling price for its fabric mask simply means lower profit margins for its business
- A decreasing average selling price for its fabric mask is likely due to lower demand for its fabric mask, which is real bad
- If the average selling price for its fabric mask continues to decline in the coming months, then its coming quarter results will decline as well
- Its core business – apparels business has been declining since many years ago, without its fabric mask, the business wont look good
Well, these are my worries. Again, there are always other possibilities that we can think of.
For example, even with so many successful vaccine development news right now, the near-term end result might not be what everyone expects it be. IF that really happens, and having its US FDA approved for its fabric face mask, the demand could increase again increase in a big way. Theoretically, this will bring up their average selling price for its fabric mask.
By expecting its business to decline in the coming quarters, I will not talk about any valuation for Prlexus at this point of time. But I could always be wrong, so please read and invest at your own risk. Hopefully, this article could serve as a guide for you, something to ponder upon.