A worker at Karex Bhd testing a water-filled condom for leaks. The company says it is building a new factory in Pontian by end-2014 to boost capacity to 6 billion pieces a year.
KUALA LUMPUR: Karex Bhd
's nine month FY17 profit after tax and minority interest (Patami) of RM25mil fell short of both Hong Leong Investment Bank Research (HLIB) and consensus expectations.
The research house said Karex 9M17 Patami was below expectations, accounting for 48% and 47% of HLIB and consensus full year estimates.
It said the deviations in the results are mainly due to higher marketing and distribution expenses related to the expansion of the original brand manufacturing (OBM) segment and continued depressed average selling price (ASP) from the tender market.
Karex’s revenue grew 3.4% year-on-year (yoy) despite the tougher tender market and compressed ASP environment. This is reflexive of the strides made in the OBM segment (double digit growth yoy).
“Gross margins were within the comfort levels of 30- 33%. Nonetheless, Patami declined 54% yoy on continued investment in the OBM segment,” HLIB said.
It said the utilisation rate remained at the 60%-65% levels for the period under review while ASP for tender market was still to recover as the segment remains extremely price competitive
HLIB said the group was making a push into the UK and US consumer market as the company continued its effort in expanding into OBM segment; as such HLIB continue to expect marketing and admin expenses to grow in tandem with the size of their commercial campaigns.
“We opine that strength in US dollar should help to mitigate the impact of rising raw material prices.
“Latex price has hovered around RM6.50 per kg from around RM8 per kg at the beginning of the year. We maintain a RM4.30/US$ in our FY17, FY18 and FY19 assumptions,” HLIB said.
The research house has reduced its FY17/18/19 earnings by 28%/10%/22% on the expectation of continued competitive ASP environment for the tender market and continuous targeted investments in the OBM segment.
“We maintain our ‘hold’ recommendation with a lower target price of RM1.97 from RM2.29 pegged to unchanged P/E multiple of 24 times of CY18 EPS post earnings revision,” it said.
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