PETALING JAYA: Karex Bhd
will continue to face margin pressure from a stronger ringgit versus the US dollar and higher input costs, as the US-Iran conflict lifts key cost lines such as packaging, silicone oil, and logistics.
To offset the impact, CIMB Research said the condom manufacturer is implementing selling price hikes estimated at 20% to 25% on existing products, phased in to manage customer acceptance.
The pricing power is further supported by a tighter industry supply backdrop, particularly in tender markets, following capacity rationalisation among large condom manufacturers and instances of tender withdrawals amid compressed margins and elevated costs.
Karex also has three to six months of input inventory cover depending on input material, providing a near-term buffer as pricing actions catch up with foreign exchange (forex) and cost volatility, the research house further said in a note to clients yesterday.
In the near term, CIMB Research said any average selling price (ASP) hike will be implemented incrementally to preserve relationships and volume continuity.
“We view this as structurally positive over the medium term as it helps re-base the industry price curve after a multi-year cost upcycle,” it added.
Importantly, once higher ASPs are embedded into contract renewals and customer price lists, they are typically “sticky” and are less likely to fully reverse even if input costs normalise, given ongoing cost inflation, compliance requirements, and a more rational supply environment.
As the macroeconomic and forex backdrop becomes more supportive, the combination of higher realised ASPs and easing cost pressures should translate into disproportionate margin and earnings upside.
In term of earnings, CIMB Research expects Karex to remain loss-making in the second half of financial year 2026 (FY26) amid a challenging external operating environment, before returning to profitability in FY27.
“This was already reflected in the research house’s FY26 to FY28 forecasts,” it said.
Accordingly, CIMB Research has reiterated a “buy” call on Karex and kept its target price of 70 sen.
“In our view, the stock warrants a longer-term lens, underpinned by Karex’s patented nitrile technology and its exclusive original equipment manufacturer supply relationship with the world’s largest condom brand (Customer D), which supports multi-year volume visibility beyond FY28,” it noted.
Meanwhile, an analyst with a bank-backed brokerage said the US-Iran conflict has inflated costs for Karex’s key inputs – particularly manufacturing chemicals, packaging, and latex – which are estimated to collectively account for about 50% of the company’s cost of goods sold.
Furthermore, Karex expects latex prices to normalise due to ample supply in the market.
However, the analyst further pointed out that tighter supply conditions for manufacturing chemicals and packaging could keep cost pressures elevated over the near term.
Yesterday, Karex shares closed at 52 sen.
