Market analysts have maintained their OUTPERFORM call for Karex Bhd citing its strategic partnership with an OEM1 client that has facilitated its entry into high-potential markets and its strategic capacity expansion, backed by global demand for high-margin synthetic condom products rising at 8%-9%, reported Kenanga Investment Bank Bhd (Kenanga Research).
Karex has an exclusive two-year partnership with the prominent OEM client recognised globally as a market leader which is committed to substantial marketing investment to promote Karex’s new synthetic condoms made of quality natural rubber latex.
As reported, synthetic condoms offer a high gross profit margin of over 50%, significantly above the company’s overall margin of 35%.
Additionally, the birth-control condom industry, is projected by industry experts to grow at 8% to 9% CAGR2 over the immediate term
Although synthetic condoms currently contribute less than 5% of total production, this expansion is expected to enhance profitability and drive future earnings growth.
The first shipment batches have already been sent to key European markets, including France, Belgium, Germany, the Netherlands, and Luxembourg, with subsequent shipment to the United States expected around April 2025.
Moreover, by the end of 2025, Karex will have the clearance to sell the products under its own brand name, creating additional revenue streams. Positioned as a premium offering, this patented synthetic product is expected to be competitively priced within the premium segment (currently priced around RM60 for 10 pieces).
Production-wise, Karex’s Hat Yai plant is operating two production lines with the new third line expected to commence by the end of November, with further plans to add one new line each month, reaching a total of six lines at the Hat Yai site. Further ahead, Karex is planning to add 10 additional lines, bringing total lines to 16 by end of 2025.
Overall, Karex, a consumer products listing on Bursa’s Main board, is favoured by analysts due to its leading market position and global reach, its strong Research and Development (R&D) towards product innovation, its adherence to international standards and certifications, and lastly, growing demand in markets like China and growing preference for high quality innovative condom products.
Nevertheless, analysts noted inherent risk to their call, including global public policy shift on birth control, lower market acceptance rate for its new products and inability to raise prices to safeguard profit margins.
Kenanga Research has maintained its target price for Karex at RM1.12.
Karex’s stock traded at RM0.86 as at 12:01pm on Nov 5, up by half of a sen from its closing price of RM0.855 recorded on Monday.
Meanwhile, the recent strengthening of the ringgit against the US dollar is expected to have short-term impact on Karex’s financial
performance, as overseas profits denominated in US dollar will translate into fewer ringgit, reducing reported revenue and earnings.
On the local front, the increase of minimum wage from RM1,500 to RM1,700 in Malaysia will add approximately RM1 million to quarterly labour costs, estimated based on around 1,500 Karex workforce in Malaysia, while the workforce in Thailand won’t be affected by the adjustment.
Despite these challenges, the company does not expect any further impairment provision related to its business in the coming quarter and is exploring cost mitigation strategy, including operational efficiency.
