Kenanga Research expects a short-term impact on the company’s financial performance from the recent strengthening of the ringgit against the US dollar.
PETALING JAYA: Karex Bhd
’s entry into the synthetic condom market, together with a strategic partnership with a globally known original equipment manufacturer (OEM) of condoms, is expected to boost future earnings and growth prospects as the company plans to expand production capacity.
Kenanga Research, which visited the company’s plant in Hatyai, Thailand, recently, has maintained an “outperform” call on the stock with a RM1.12 target price based on an unchanged 2025 price-earnings ratio (PER) of 25 times.
This represents a 20% premium to the average five-year historical PER of international peers, reflecting the world’s largest condom producer’s dominant market position and strong growth prospects.
Karex has plans to ramp up synthetic condom production at the Hatyai plant to 16 production lines by the end of 2025 or a total annual capacity of 400 million pieces.
Synthetic condoms currently comprise less than 5% of the company’s total production, but will reach 6.7% of total production by the end of next year.
The research house said synthetic condoms, which make up US$1.4bil of the US$8bil global market, offer a gross profit margin of over 50% compared with the company’s overall margin of 35% and the expansion of capacity would enhance profitability and drive future earnings growth.
Management shared that it has secured an exclusive two-year partnership with a prominent OEM client with a strong international presence that has also committed to a substantial marketing investment to promote the new product.
The first shipments to key European markets have been sent, with shipments to the United States expected around April 2025. Additionally, the move toward synthetic condoms in some markets presents a significant opportunity to expand market share, moving forward.
Karex would be allowed to sell the synthetic condoms under its own brand by the end of 2025.
“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),” the research house said.
“Karex expects to secure high-value orders for condoms and personal lubricants by leveraging its strong reputation, diverse product range and regulatory expertise,” the research house said, adding that while the shift between tender and commercial markets may disrupt traditional sales channels in the short term, the company sees medium-term growth opportunities.
Kenanga Research expects a short-term impact on the company’s financial performance from the recent strengthening of the ringgit against the US dollar, as profit denominated in the greenback will be translated into fewer ringgit.
The research house said the increase of the minimum wage to RM1,700 will add approximately RM1mil to quarterly labour costs.
“Despite these challenges, the company does not expect any further impairments provision related to its glove business in the coming quarter and is exploring cost-mitigation strategies, including operational efficiencies.
“From our understanding, the cost of production in Hatyai is considered lower than its Malaysian plant due to lower taxes and cheaper land,” it said.
