KUALA LUMPUR: Karex Bhd
is still attractive in the long-term given its position as the world’s largest condom manufacturer and budding potential as an original brand manufacturer, says CIMB Equities Research.
The research house said on Monday that it viewed the company over the long term though the near-term earnings outlook remains weak.
“We view any potential sell-down of the stock as a buying opportunity. Downside/upside risks: sharp decline/increase in condom average selling prices,” it said.
CIMB Research said after inputting its earnings per share (EPS) cuts while rolling over its valuation to end-2018, its TP is raised slightly to RM1.44.
“This is still based on an unchanged 28 times CY19 price-to-earnings (-one standard deviation of its three-year mean),” it said.
It said Karex’s 1QFY6/18 core net profit of RM4.2mil was well below expectations at 9.4% of its and 8.7% of Bloomberg consensus’ FY18F estimates.
Despite a higher 1QFY18 revenue (34.4% on-year), net profit was weaker than expected due to: i) weaker ASPs, ii) higher operating costs, and iii) increase in production costs.
In light of the easing of pricing competition, the group has raised the prices of its condoms which will be reflected at the beginning of 3QFY18 (early CY18).
“Our FY18-20F EPS are cut by 13.6% to 35.7%. Nevertheless, we expect Karex to record stronger quarters ahead from higher average selling prices and better cost control,” it said.