Market for condom expanding


  • Business
  • Saturday, 31 Aug 2013

GOH Miah Kiat, chief executive officer of Bursa Malaysia-bound Karex Bhd, walks a few reporters through the company’s factory in Port Klang, to disclose how condoms are made and the rigorous tests they go through to ensure that they are “up to mark.”

The first room he walks us through has hundreds of condoms strapped onto a line that is dipped in latex, to basically ensure that a fine, smooth film is achieved.

However, it’s the strong smell of ammonia in the room that hits you the moment you walk in. It’s so disorientating that your eyes actually start smarting.

“My father used to say that this was the smell of money,” Goh enthuses.

The condoms are leached in a tank of diluted ammonia solution as part of a sterilisation process.

After the manufacturing process is complete, a portion of the condoms go through rigorous stress tests – such as running them through electricity and filling them with water (to check for leaks) and then inflating them up with air - until they explode!

Goh says the company is always finding ways to improve the standard of its products.

“In the past, condoms were seen as purely a contraceptive. But these days, they’re so much more. They’re a pleasure product and people are taking their quality seriously.

“And if the product is not up to standard, people will lose confidence in the product – and ultimately, its manufacturer.

“We invest around 1% of our annual revenue in research and development (R&D),” he says.

For its financial year ended June 30, 2012, the company posted RM12.01mil in net profit on revenue of RM188.75mil. That compares with the 2011 net profit of RM6.98mil and revenue of RM181.75mil.

According to its draft prospectus, which was issued earlier this year, the company is planning to offer 67.5 million shares, or 25% of its enlarged capital, in its initial public offering (IPO) in a bid to expand further.

In its draft prospectus, the company said the IPO would comprise the issuance of 40.5 million new shares and 27 million shares offered for sale by its existing shareholders. The investing public is entitled to a tranche of 13.5 million new shares, representing 5% of the company.

RHB Investment Bank Bhd is the principal adviser for the IPO, while ZJ Advisory Sdn Bhd is the financial adviser. Goh said Karex plans to list on the local bourse by the fourth quarter of this year.

Although he declined to say how much the company plans to raise, Goh did reveal that about 87% of the proceeds from the IPO would be for capital expenditure and working capital.

“The remaining 13% will be for R&D and listing expenses,” said Goh.

Other than its factory in Klang, the company also has two other plants – one in Johor (which is its biggest facility) and another in Thailand.

Goh says the company will be expanding its plant in Johor in a bid to double its current annual capacity to six billion pieces by 2015.

“We will be investing RM70mil to expand our factory in Johor,” he says, adding that the company will be increasing its production capacity in stages.

“We’re producing three billion condoms annually at the moment and plan to increase it to four billion by year-end. We plan to have a production capacity of five billion pieces by 2014 and then six billion by 2015.”

The Karex group currently employs around 2,000 people. With the plant expansion, Goh says although there will be an increase in workers, the focus will also be to beef up its automation processes within the facility.

Goh says the increase in production capacity is in line with the expected growth in demand for condoms, moving forward.

According to him, the condom market is expected to grow at a compounded annual growth rate of 7.5% to 30 billion pieces in 2016 from 21 billion pieces in 2011.

“The condom market is growing and we’re seeing good growth. We’re the world’s largest manufacturer and we like to maintain this position.

Demand is associated with population growth, and it (the population) is growing. There are seven billion people in the world now and it is projected to reach eight billion by 2025. Half the population would be below the age of 25. This is the potential that we see.”

Karex was established in Johor in 1988 as an original brand manufacturer in Malaysia and Singapore with only one dipping line with production capacity of 60 million pieces of condom per annum.

Over the years, Karex has grown to be the largest condom manufacturer in the world with production capacity of three billion pieces per annum with an established list of clientele from all over the world of more than 110 countries.

Its products are sold in the commercial market (manufactured for customers such as Ansell Ltd and Reckitt Benckiser Plc), the tender market (institutional buyers such as the United Nations Population Fund and USAID) and own brand market (sold under their own brands, namely Carex and Inno).

Among its top markets include Brazil, China, the Middle east and South Africa.

“We also distribute to countries that have been highly infected with HIV and AIDS,” says Goh, adding that the rise in sexually transmitted diseases over the decades had heightened the demand for contraceptives.

“During the pre-HIV days, growth within the condom industry was flat. But after HIV, demand has been steadily growing.”

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Business , Karex , condoms , Goh

   

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