ONE-way to break the taboo

Wedel: ‘We have religious and political intolerance for condoms that’s very significant and is a tough challenge to overcome.’

IN many parts of Asia, there is still the underlying taboo on the topic of sex. Nevertheless, it is an important and necessary one as many are still oblivious to the dangers of unprotected sex.

This is the message that Karex Bhd and its 55% subsidiary US-based Global Protection Corp are trying to get across, especially with the launch of the ONE brand condoms in Malaysia, which was in conjunction with World Aids Day on Dec 1.

Interestingly, Global Protection founder and chief executive officer Davin Wedel admits he stole his first condom at a young age because he was too embarrassed to buy one himself.

His goal is to start conversations and raise awareness so others would not have to be embarrassed about buying condoms.

“There is a taboo, but that also gives an opportunity for conversation. There could be so much excitement in a brand that addresses real issues out there.

“Condoms are a necessity, they solve the problem of unwanted pregnancies and sexually transmitted infections,” he tells StarBizWeek.

This taboo could affect Karex’s marketing campaign for the newly-launched ONE brand in Malaysia.

But Wedel dismisses this: “It’s an idea that in the United States, we are very liberal, but in fact, half of the country is very conservative. We have extremists in terms of conservatism and we have battled that. We have religious and political intolerance for condoms that’s very significant and is a tough challenge to overcome.”

The point he adds, is to be able to have that conversation and that is what Karex together with Global Protection hopes to help start here.

Karex will be putting the ONE brand condoms on the shelves of convenient stores in Malaysia by the middle of this month.

Wedel says retailers have been showing keen interest in the ONE brand and in its unique marketing campaign. Also, the product will be sold at a 10% to 15% discount to Durex’s products, which has been one of the more dominant brands in the Malaysian market.

“It’s not so much about Durex itself, but the fact that we think Durex is overpriced and Durex has done that worldwide,” he says.

“I think there is a great opportunity in Malaysia for sales to be pretty to be significant. I think we can take share in the market pretty quickly,” he says.

Wedel adds that Global Protection’s experience in the United States has shown that when it enters the market with a successful marketing campaign, it has gained market share quite fast.

Today, the ONE brand sits among the top five largest condom brands in the United States, and serves nearly 1,000 companies including Walgreen Company, CVS Pharmacy, and Shoppers Drug Mart.

The brand is well-received in the US and Canada markets, for its eye-catching and innovative product designs.

Packaging of ONE brand condoms breaks away from the typical rectangular cardboard boxes and square wrappers. Instead, they come in various-coloured sleek metal tins, with unique designs on round wrappers.

Karex chief executive officer Goh Miah Kiat says one of the key agreement points between the two parties is to take the ONE brand global, but in a very rational way.

“Davin has told me before that it’s easy to flood the market, but how do we really make the products sell?” says Goh.

So, the two are strategically looking at entering a few countries at one time to gauge consumer demands.

“Marketing plans and strategy must be in place. And we are seeing a very aggressive one for the ONE brand. It’s completely different from what the other companies are doing, it’s very grassroots,” says Wedel.

Karex has the rights to distribute products under the ONE brand to South-East Asia, China, Hong Kong, Taiwan, North Africa, Middle East, Australia, New Zealand, Japan and South Korea.

It plans to launch the brand in Singapore and Thailand in 2016.

“We will move from Thailand then into Taiwan, South Korea and Hong Kong before going into China,” says Wedel.

Global Protection has, in the year or so since being acquired, been adjusting to being a part of the bigger Karex family.

“We have been adjusting to being a part of Karex and public reporting,” laughs Wedel.

“We have been getting used to the audits and also getting ready for the next phase of growth. Also, we’ve been readjusting my team, professionalising the team and really building the marketing and sales department,” he says.

Global Protection has recently added a new creative director, marketing coordinator and a graphic designer. Wedel says this is to help support what it is doing here for the launch and to continue the expansion.

Goh adds: “From Karex’s side, we are also adjusting to what Davin is doing. Immediately what we look at is what would be best to help. Production wise, we have done quite well for them. We looked at warehousing and getting all the operational stuff sorted out within the last 12 months. We are also looking at positioning and strategically what we can do to consolidate or put Global Protection in a better position.”

The parties have been talking about different acquisitions and looking how to gain efficiency.

There are hints that some new acquisitions might firm up soon.

“We’re looking at brands and some of them have interesting new product technologies that actually has not been widely been looked at in the market. There’s one we are looking at that we think can really benefit the ONE brand and it is an interesting new way to get condoms in consumers’ hands,” Wedel says.

With the 55% stake acquisition in Wedel’s Global Protection, Karex’s original brand manufacturing (OBM) segment has grown from 4% when the company went for its initial public offering in November 2013 to 9% currently. The company is targeting for the segment to contribute 20% in three to five years.

Goh has previously said that profit margins for the OBM segment is 10% higher than that of the original equipment manufacturing segment.

Karex bought a 55% stake in Global Protection in August 2014 for US$6.6mil (RM21.4mil) in cash. It has the option to acquire another 15% stake in 2017, and the remaining 30% in 2020 through call and put option arrangements between Karex and Wedel.

The last 30%, if Karex decides to acquire, will be settled with a 30% stake in Karex.

Karex also recently bought another condom manufacturer, Medical-Latex (Dua) Sdn Bhd, which also came with land for possible future expansion.

Karex’s recent quarterly results came in higher than analysts’ expectation, despite the minimal capacity addition in the quarter and delayed in order acceptance from one of its tender market customers.

Net profit for the first quarter ended Sept 30, 2015 grew 73.75% to RM22.29mil from RM12.83mil in the same quarter a year ago, mainly due to a stronger US dollar against the ringgit, better product mix and lower raw material prices.

While revenue saw a 8.5% increase to RM76.09mil compared with RM70.13mil in the same period last year on higher contribution from the commercial market. However revenue from the tender market fell due to late acceptance of goods from clients.

Moving forward, Karex’s growth will be fuelled by higher capacity, which will start coming onstream progressively in the second quarter of the financial year ending June 30, 2016.

The company plans to hit 4.5 billion pieces by the end of the calendar year 2015.

“We believe that the increase in production will aid in sustaining the sequential earnings momentum even if the ringgit strengthens against the US dollar,” says Affin Hwang Capital Research in a note.

However, Affin Hwang downgraded its target price for the stock, as Karex’s share price has risen more than 27% since it initiated coverage on the company on Sept 23, 2015.

“We believe that Karex’s valuations are rather rich with much of the good news in the price. Nonetheless, we still like the group for its OBM segment and dominance as the largest manufacturer in the condom industry,” it says.

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