CIMB Research said Karex is poised for a multi-year earnings upcycle, driven by the commercialisation of its patented nitrile condoms.
PETALING JAYA: CIMB Research has initiated coverage on Karex Bhd
with a “buy” rating and target price of RM1.60.
It said the condom maker was entering a structural earnings upcycle, driven by the transition of its patented nitrile synthetic condom moving from pilot launch to mass market commercialisation.
“Its exclusive global partner (customer D) has expanded distribution to 18 countries with a full global rollout underway.
“This marks a shift from research and development investment to earnings delivery, as nitrile production capacity is set to grow five times to 900 million pieces per annum by end of financial year ending June 30, 2028 (FY28),” it told clients.
Backed by premium pricing and more than 50% gross margins of the product, Karex is well-positioned to capitalise on its first-mover advantage in synthetic nitrile condom segment, the research house said.
In the report, it noted that as the world’s largest condom maker, Karex had an annual production capacity of more than five billion pieces and exports to more than 140 countries.
With approvals secured in 2024, it has built a defensible moat as the first and sole global producer of nitrile synthetic condoms, backed by strong in-house research and engineering capabilities, it said.
According to the research house, nitrile condoms offered superior attributes to latex alternatives (softer, thinner, better heat transfer and sensitivity) while remaining cost-efficient and scalable.
“After an earnings trough in FY22 to FY25 from high research and development spending, certification delays, glove division losses and softer tender sales, Karex is poised for a multi-year earnings upcycle, driven by the commercialisation of its patented nitrile condoms.”
CIMB Research said despite its smaller market cap, its target price to earnings (P/E) multiple was in-line with the weighted average 2027 P/E of global intimate wellness peers (18.8 times), justified by Karex’s global leadership, patented nitrile condom innovation (the first material breakthrough in decades) and robust earnings growth.
The research house noted that Karex had weathered an earnings trough period during FY22 to FY25.
Rising costs – including minimum wage hikes, higher logistics expenses, and stricter social compliance requirements – compressed margins, while healthcare budget cuts from key tender customers weighed on volumes in its core tender segment.
At the same time, Karex absorbed upfront research and development and certification costs for its nitrile condom, while its foray into rubber gloves in FY22 were loss-making, it said.
Citing Grand View Research, CIMB Research said the global condom market was valued at US$11.6bil in 2023 and is forecast to reach US$20.7bil by 2030.
Latex condoms remain dominant, accounting for 88% of market value but non-latex products represent the fastest-growing segment due to rising awareness of latex allergies and higher consumer demand for alternatives, it added. At press time, Karex shares were at 96 sen each.
