Posted by JT Yeo > 2015-03-20 10:22 | Report Abuse

I am amazed that you use Nike's earnings to gauge Prolexus earnings. Nike has 600+ factories making contract manufacturing for them, does that means all those companies will report increase in earnings as Nike?

Posted by Steve Ong Wei Siang > 2015-03-20 11:08 | Report Abuse

Those 600+ factories factory sales growth is a matter of (overall size of the pie represented by Nike's global order) x (Market share of the pie). This recent earning indicate the former is growing, but ability to grow also depend the ability to maintain or grow the later. In Prolexus case, the earning report further support management's previous comment on TheEDGE that their customers order are strong. Hence, the potential sales growth of Prolexus is huge, but actual growth also depend on the 2nd part of the formula, which is my concern on their ability to expand their capacity. Since Q2 is seasonal strong quarter, any slow YOY growth (<10%) may indicate capacity constraint. Besides that, if assume the Market share of the pie remain constant for all players, this only indicate growth in topline that may not necessary translates to the bottomline.

Posted by JT Yeo > 2015-03-20 11:54 | Report Abuse

No doubts Prolexus quantitative is relatively strong, but it is pretty hard to access their qualitative strength. They dont explain much in Annual report and it is hard to measure their competitive advantage. Such as how long is their contract with nike, how does nike select contractors, what is the barrier of entry etc.

Posted by Steve Ong Wei Siang > 2015-03-20 12:44 | Report Abuse

True, they are not investor friendly. But they have non-disclosure obligation, I don't think that info can be disclosed. I am ok with that, but I want to know their pricing/billing details. USD strengthening is generally beneficial to Prolexus but how much is this benefit shared between Prolexus and its customers? I am sure the customers will ask for discount with their position. Anyway, with that risk, what i can do is to use higher required return for this investment.

Posted by JT Yeo > 2015-03-20 13:25 | Report Abuse

yea it is not an obligation, but i think it is part of corporate governance, consider that their peer Magni, every year annual report is the same old copy and paste 3 sentences.

Forex can temporary boost the earnings but I prefer to look at the long term competitive advantages of the company like if they can sustain current ROE, barrier of entry for example economic of scales can be one of it, but in Prolexus case, I dont think there is any EoS advantage or even if they do, it would make a huge difference.

From my opinion, apparel manufacturing is quite a 'commodity' business, pretty hard to create a competitive advantage especially having such a powerful client like Nike but it is possible to create operation efficiency ie being the lowest cost manufacturer.

Posted by Shah Faisal > 2015-03-22 00:39 | Report Abuse

Hold..this counter got good management with right mindset..