Tough love for Karex

PETALING JAYA: HLIB Research has maintained its “hold” call, but cut its target price on Karex Bhd, on continued price competition in the near term even as it is long term positive on Karex’s ambition to grow its original brand manufacturing (OBM).
HLIB has reduced its FY18-19 earnings by 29-30% on the expectation of a persistent competitive operating environment and a higher cost base.
It estimates that Karex will make a net profit of RM53.7 million on RM412.2 million revenue for the financial year ending June 30, 2018 (FY18).
The company posted a 58% fall in net profit for the financial year ended June 30, 2017 to RM27.9 million, coming below expectations.
HLIB reduced its target price for the stock to RM1.37 from RM1.97.
The company’s share price closed half a sen lower at RM1.41 on Wednesday. It has a market capitalisation of RM1.4 billion.
On the OBM front, Karex will be entering the Singapore and Thailand retail market in FY18 with a pricing-driven entry strategy.
Retail prices are expected to be 20-30% lower than Durex in the Thai market.
“In FY18, we continue to expect average selling price to remain relatively low despite signs of recovery in 4Q17 due to the consolidating global condom market.
Nevertheless, we expect a better performance relative to FY17 on the back of returning volumes partially offset by a higher cost base,” HLIB said in its note.
Risks to HLIB’s forecast include a surge in raw material prices, foreign exchange risks, revision on foreign labour policy, and successful invention of HIV/AIDS cure.