Condom manufacturer Karex Berhad posted a wider-than-expected core net loss of RM5.1 million for the third quarter ended March 2026 (3QFY26), reversing from a core net profit of RM6.0 million a year earlier, as a stronger ringgit, rising input costs and weaker sales volumes pressured margins.
The disappointing performance dragged the group’s cumulative nine-month results into a core net loss of RM0.7 million, falling short of both market and analyst expectations for a full-year profit.
According to CIMB Research, the earnings miss was largely attributable to the appreciation of the ringgit against the US dollar, which averaged RM3.96 during the quarter, approximately 11% stronger year-on-year, reducing the value of export earnings. The company also faced higher raw material and operating costs amid ongoing global supply chain disruptions.
Revenue Declines Amid Lower Sales Volumes
For the first nine months of FY26, revenue slipped 4.3% year-on-year to RM361 million, weighed down by lower contributions from both its core sexual wellness division and medical products segment.
The sexual wellness business, which contributes more than 90% of group revenue, recorded a 3.2% decline despite higher synthetic condom sales. Meanwhile, revenue from the medical segment plunged 24.2% year-on-year.
The decline was attributed to lower tender volumes, the stronger ringgit and softer demand across certain export markets.
Gross profit margins narrowed by 1.8 percentage points during the period, while EBITDA margins fell sharply by 5.4 percentage points to 5.9%, reflecting rising operating costs and the impact of US import tariffs estimated at around US$2 million (RM11.1 million).
Quarter-on-quarter, revenue fell 13.9%, while losses widened from RM1.7 million in the preceding quarter to RM5.1 million.
The weaker quarterly performance was driven by further appreciation of the ringgit, lower lubricant sales due to bottle shortages and shipment delays, as well as reduced synthetic condom sales as the company refined products ahead of new market launches.
Cost Pressures Persist but Recovery Expected
Despite the challenging quarter, analysts believe the worst may be over for Karex.
The company continues to face margin pressures from elevated costs for packaging materials, silicone oil and logistics, partly exacerbated by geopolitical tensions in the Middle East. However, sales volumes are expected to improve gradually as production normalises and order fulfilment strengthens.
Karex may also receive tariff refunds of approximately US$2 million following a reduction in US import tariff rates from 19% to 10% effective March 2026, although analysts have excluded the potential reimbursement from their forecasts.
To mitigate rising costs, the group has begun implementing gradual selling price increases of between 20% and 25%, supported by tighter industry supply conditions after capacity rationalisation among major manufacturers and reduced participation in low-margin tender markets.
Analysts expect the benefits of these price adjustments to become more visible from FY27 onwards, helping to restore profitability as higher contract prices filter through customer agreements.
Long-Term Growth Story Remains Intact
Following the earnings miss, CIMB Research revised its FY26 forecast to a core net loss of RM3.0 million from a previously expected profit of RM5.9 million.
Nevertheless, the research house maintained its “Buy” recommendation and target price of RM0.70, citing Karex’s long-term growth prospects.
The positive outlook is underpinned by the group’s patented nitrile condom technology and its exclusive original equipment manufacturing (OEM) supply arrangement with one of the world’s largest global condom brands, providing visibility on future volumes beyond FY26.
CIMB noted that despite near-term forex and cost headwinds, Karex’s earnings recovery potential remains attractive, with the stock trading at relatively undemanding valuation levels compared with its projected medium-term earnings growth trajectory.
