Kenanga Investment Bank Bhd (Kenanga Research) has reiterated its OUTPERFORM call for Karex Bhd, revising its target price to RM1.16 from RM1.12 after adjusting for forex translation impact and rolling its valuation forward to FY26. The research house has revised the company’s earnings for the financial year of 2025 to 2026 (FY25-FY26) lower by 12-4% but remains optimistic about Karex’s prospects, maintaining a 25 times price per earnings ratio (PER) on the company’s valuation.
The new target price represents a 20% premium to its international peers’ average historical 5-year forward PER, reflecting Karex’s dominant market position and strong growth outlook.
Karex is seeing positive developments with its OEM partner, who is preparing to launch a new synthetic condom designed to enhance body heat transfer. The partner has increased orders, anticipating strong consumer demand for the new product. According to Kenanga Research, this increased order volume has had a direct impact on Karex, which is continuing to expand its synthetic condom production at its Hat Yai plant. The plant, which currently operates three production lines, plans to add one new line each month, with a total of six lines by June 2025.
By the end of 2025, the plant is expected to operate 16 lines, bringing the total annual production capacity to 400 million pieces. Synthetic condoms, made from lower-cost nitrile material, offer a competitive pricing advantage over natural condoms, which face higher material costs. These products also carry higher gross profit margins of over 50%, significantly boosting Karex’s overall margins.
Karex is also benefiting from a rising demand for medical-grade lubricants, contributing positively to the company’s growth. The lubricant segment accounted for 17% of total sales in the first quarter of FY25, up from 15% in FY24. This growth is driven by an increase in private label orders and a growing awareness of the benefits of personal lubricants.
Moreover, as a manufacturer of medical-grade lubricants, Karex continues to capitalise on the US FDA’s reclassification of personal lubricants as medical devices rather than cosmetic products. Karex plans to further expand its product range to include synthetic, silicone, and hybrid lubricants, positioning itself to tap into a growing market with diverse consumer needs.
Despite a positive outlook, Kenanga Research estimated an unrealised forex loss of RM4 million for Karex in the first quarter of FY25, as fluctuations in exchange rates impacted its earnings. The Malaysian Ringgit strengthened against the US Dollar during the quarter, but has since weakened.
Kenanga Research now expects the Ringgit Malaysia to stabilise at RM4.50 for both FY25 and FY26, which has led to downward revisions in earnings forecasts. Nevertheless, the research house remains confident that Karex’s position in the market and its strategic focus on high-value products will drive growth moving forward.
