Karex Bhd, the world's largest condom manufacturer, is riding on the strong growth, focusing on high-margin products which will take its profitability to a higher level, according to a local research house.
"It is penetrating high-growth markets with premium offerings backed by innovation and strict compliance with international standards. We project its earnings to double in FY24, followed by another 88% surge in FY25," according to Kenanga Research.
In an initiation report released today, it has badged the counter as 'Outperform' with a 52- week target price of RM1.00. The stock was trading unchanged at 78 sen at 10am today.
The report noted that the global condom market was on an impressive growth trajectory, projected to nearly double from US$8-9 billion in 2022 to US$19-23 billion by 2032, with a robust compound annual growth rate (CAGR) of 8%-9%.
The surge was fuelled by heightened consumer awareness, a diverse array of products catering to varied preferences, and global initiatives to curb sexually transmitted diseases (STDs) and sexually transmitted infections (STIs), it said.
"Karex, being the world largest condom manufacturer with a 20% market share and producing up to 5.5 billion pieces annually, is well-equipped to ride rising industry demand," it said.
Amid a decade marked by stiff competition and the impact of the pandemic, it said Karex has successfully shifted its focus to high-margin products and segments, especially in its commercial and original brand manufacturing (OBM) segments.
It said the strategic redirection has substantially boosted the company's profitability, with these segments yielding gross profit margins significantly higher than the tender market, at 20%-25% and over 50% compared to 7%-10%.
In 1QFY24, despite a slight reduction in revenue, it said Karex achieved 'impressive increases in both gross profit and operating profit margins', underlining the company's resilience and the effectiveness of its strategy in targeting more profitable segments.
"We expect Karex to achieve a significant 24% annual revenue growth in FY24 and FY25, spurred by increased activity in its commercial, OBM, and tender segments. The company's profit margins are likely to see an uplift due to an advantageous product and segment mix, along with stable costs for raw materials and freight.
"This is expected to lead to a substantial net profit increase, with a projection of a 113% rise to RM22 million in FY24, and a further 88% growth to RM42 million in FY25," it said.