KUALA LUMPUR: Karex Bhd
's 4QFY24 results are expected to meet estimates on growing contribution from high-margin personal lubricant products, which now make up over 15% of the group's turnover, said Kenanga Research.
The research firm, which has a RM25mil projection on the condom maker's FY24 earnings, said the results of the group's final financial quarter are expected to bring its full-year profit close to expectations.
According to Kenanga, Karex's prospects are looking brighter following a strategic shift to higher-margin segments such as commercial and OBM from the lower-margin tender segment.
"The commercial, OBM, and tender segments contributed 61%, 19% and 20% to Karex’s total turnover as of 9MFY24, compared to 59%, 17% and 24% in FY23, respectively," it said in a note.
Additionally, Karex is scheduled to deliver its first synthetic condom order to an OEM client in November, making it in time for the European market during Christmas.
The synthetic condoms are designed to be more heat-sensitive,
thinner, and cost-efficient and - assuming they are well-received on the market - Karex expects to receive larger orders for FY26 delivery.
"While revenue contributions from this product in FY25 are expected to be modest, a more significant impact is projected for FY26 after the OEM client’s assessment of market demand.
"Based on preliminary estimates, this product could potentially generate approximately RM50mil in sales should Karex secure 3% of the OEM client's synthetic order," said Kenanga.
The research firm noted that, demand for synthetic condoms, currently making up 17.6% of the world's condom market, have hypoallergenic properties and are gaining in popularity as an alternative to natural latex condoms.
Kenanga noted also the group's glove business segment has been weighing on earnings due to low utilisation.
The unit is currently incurring about RM8mil in annual maintenance expenses including depreciation and interest.
"This segment will likely continue to weigh on earnings unless utilisation improves. However, the global glove sector's outlook is improving in the recent quarters, potentially offering modest growth opportunities for Karex's glove segment," said Kenanga.
The research house reiterated its "outperform" recommendation on Karex with an unchanged target price of RM1.10.
