RHB Research initiates coverage on Karex, Buy call

KUALA LUMPUR: RHB Research has initiated coverage on Karex Bhd with a Buy call and a RM2.59 target price as it expects earnings from the world’s larget condom manufacturer to bounce, driven by a doubling in capacity as well as the growth in the tender market.

In a note on Tuesday, RHB said Karex, which is set to list on Bursa Malaysia’s Main Market on Nov 6 with a RM500mil market cap, would double its production capacity to six billion pieces by 2015.

“Come 2015, Karex’s effective production capacity will double to six billion pieces following the completion of its new manufacturing plant in Pontian, Johor, along with the capacity extension of its plants in Port Klang, Malaysia and Hat Yai, Thailand.

“This will solidify Karex’s position as the world’s largest condom maker, as well as widen the gap between the company and its closest global competitor, Thai Nippon Rubber Industry Co Ltd, by two billion pieces,” it said.

RHB added due to limited government funding for family planning in some developing countries, organisations such as the United Nations Population Fund (UNFPA) and United States Agency for Development (USAID) have started programmes to distribute condoms free of charge or at subsidised cost.

“This would likely benefit Karex as UNFPA and USAID are established customers. We also expect more potential contracts in the pipeline,” it said.

RHB noted it forecasts Karex revenue to reach RM289mil in financial year 2014 from RM339mil in financial year 2015.

“Given the better economies of scale and an improving customer mix, we expect the company’s net margin to widen to 13.6% in FY14F from 12.5% in FY13. We forecast core earnings of RM39.5mil and RM47.8mil for FY14F and FY15F respectively,” it said.



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