Karex on a new high after touching year-low in January

Karex Bhd performed well to rebound from a low of 72 sen on Aug 5 and its year-low of 68 sen in January. After posting a 124% year-on-year jump in net profit to RM23.4 million in FYJun 2024, it reported a 73% drop in quarterly net earnings to RM1.4 million in 1QFY25.

According to consensus forecasts, Karex is projected to achieve stronger net earnings of RM36.8 million in FY25 and RM51 million in FY26. These consensus estimates imply prospective PERs of 27.1x for FY25 and 19.5x for FY26, respectively.

As it is, Karex has been rapidly expanding its synthetic condom production, with first shipments already dispatched to Europe and plans underway to significantly scale up capacity.

The strategic partnership with an OEM client and entry into high-potential markets position Karex to capitalise on the growing demand for synthetic condoms, which offer great margins. While this segment currently contributes modestly to overall production, its high margins and growth prospects bode well for future earnings.

Karex is ramping up its synthetic condom production. Currently, the Hat Yai plant is operating two lines with a combined annual capacity of 50 million pieces.

A third line was supposed to have commenced by the end of November. The company plans to add one new line each month, reaching a total of six lines at the Hat Yai site. This expansion will increase the annual production capacity to some 150 million pieces.

Moving forward, Karex is planning to add 10 additional lines, bringing total lines to 16 by end of 2025, which could boost total capacity to 400 million pieces annually. This accounts for about 6.7% of total production.

Synthetic condoms offer a high gross profit margin of over 50%, which is significantly above the company's overall margin of 35%.

Although synthetic condoms currently contribute less than 5% of total production, this expansion is expected to enhance profitability and drive future earnings growth.

Karex is reportedly expecting to secure high-value orders for condoms and personal lubricants by leveraging its strong industry reputation, diverse product range, and regulatory expertise.

Investors should like Karex for a number of reasons, chief being its leading market position and global reach in the rapidly growing condom industry.