Karex’s acquisition of US condom manufacturer to boost long term earnings - CIMB

by **Cals** Mon 11 Aug 2014, 22:52

Business & Markets 2014

Written by Jonathan Gan of theedgemalaysia.com

Monday, 11 August 2014 10:55

KUALA LUMPUR (Aug 11): Karex Bhd’s planned acquisition of US-based condom manufacturer Global Protection (GP) will boost the former's long-term earnings, according to CIMB Investment Bank Bhd.

In a note, CIMB analyst Eing Kar Mei said financing would not be an issue for Karex given its strong net cash position of RM65 million as of March 31, 2014.

Eing said : “While the financial impact is minimal for now given the smallish earnings from GP, higher contribution from own brand manufacturing and lubricants, which GP is strong in, will definitely boost Karex’s earnings in the long term.”

GP, which is a condom and lubricant distributor in key markets such as US and Canada, owns the "ONE" brand. The company has access to approximately 30,000 stores in the US and Canada.

On Karex, Eing has upgraded CIMB's rating on Karex shares to “add” from "hold" following the company’s announcement of its proposed acquisition of GP. CIMB however maintained its target price of RM3.38 for Karex.

“As the financial impact is likely to be minimal for now, we maintain our earnings forecasts and target price which is pegged at 19 times CY15 price earnings. We upgrade Karex from "hold" to "add".

"This proposed acquisition and strong earnings growth are the key re-rating catalysts,” Eing said.

Eing said Karex's share price had declined 7% since May 25 this year and this presented a good buying opportunity for the stock. At 10:13 am, Karex was up three sen or 1% to RM2.93.