Stock picks for 2016: Karex

by **Cals** Mon 04 Jan 2016, 23:21

Stock picks for 2016: Karex

By Supriya Surendran / The Edge Financial Daily | January 4, 2016 : 10:06 AM MYT

This article first appeared in The Edge Financial Daily, on January 4, 2016.

[size=16]Karex Bhd ([You must be registered and logged in to see this image.] Valuation: 0.30, Fundamental: 2.10)

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Karex Bhd, the world’s largest condom manufacturer by volume, witnessed a strong start to the financial year ending June 30, 2016 (FY16) with a stellar first-quarter performance, and analysts expect the group to continue its positive momentum in 2016.

Karex reported a 74% increase in net profit for the three months ended Sept 30, 2015 to RM22.29 million from RM12.83 million a year ago, boosted by a gain in foreign exchange, sales of higher-margin products and lower raw material prices.

Revenue for the quarter rose 8% to RM76.09 million from RM70.13 million a year earlier, which Karex attributed to higher volumes from its condom commercial-sales segment.

“Investors continue to see value in Karex as it is a global fast-moving consumer goods counter that is a strong beneficiary of the weak ringgit against the US dollar,” opined a remisier with a local investment bank.

In its Dec 1, 2015 note on Karex, AffinHwang Capital said the group’s new production capacity is expected to reach 4.5 billion pieces by mid-FY16.

CIMB Research, in its Dec 1, 2015 note, said the group is on track to increase its production capacity to 4.5 billion pieces per year by December 2015 and six billion pieces by December this year.

“We are positive on the launch of Karex’s ONE brand condom in Malaysia in December 2015, as the group plans to launch it in other countries in Southeast Asia and South America in 2016.

“In addition, the management is targeting to increase its own-brand-manufacturing contribution to at least 20% over the next three to five years,” said CIMB Research.

“In terms of pricing, Karex expects to offer about 10% to 15% discount compared to Durex,” it added.

In the past one year, Karex’s share price has surged by 85% from RM2.24 on Dec 31, 2014 to RM4.13 last Thursday, with a market capitalisation of RM2.76 billion.
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