KAREX (5247) - Karex Berhad - Going well
Target RM3.05 (Stock Rating: HOLD)
There were no surprises from Karex’s presentation at the Invest Malaysia conference today. Demand is still strong, especially from the tender market, and Karex is confident that it will fill the upcoming capacity slated for FY15. However, we think that this has been factored into the share price. We maintain our Hold call and TP, pegged to 23x CY16 P/E (10% premium to Hartalega). For exposure to rubber-related stocks, we prefer Kossan.
What Happened
Karex’s CEO Mr Goh Miah Kiat and Group Financial Director Mr Goh Chok Siang presented to a group of around 40 participants during the Invest Malaysia conference today. Karex is on track to achieve its capacity target of 5bn pieces p.a. by Jun 2015 and it does not foresee any issues in filling the new capacity, as it still expects strong demand from the tender market, particularly in Africa. Based on the joint studies by United Nations Population Fund/Population Services International (UNFPA/PSI) in Nov 2013, there is a condom shortage of 445m pieces in six African countries, which account for only 10% of Africa’s total population. As more new capacity comes in, Karex plans to shift some of its focus to the OBM business. It is toying the possibility of another M&A exercise to expand its OBM business from the current 7% of total revenue in 1HFY15 to 20% by 2020. Karex also aims to launch “One Brand” condoms in Malaysia and Singapore in Aug/Sep 2015, before launching it in China, Hong Kong and Taiwan by year-end. In terms of OEM, Karex is setting up a subsidiary in Spain, with a local sales team to target European customers, especially supermarket chains and private labels. Given that the selling prices of other OEM manufacturers in Europe are much higher, Karex is confident that it will successfully capture a significant share of the European market. It will probably take another six months for us to see any earnings impact from the chain stores in Europe. Karex estimates that every 10% movement in US$ against RM will have 4-5% impact on its earnings.
What We Think
There were no surprises from the presentation. Karex has been largely on track to meet its expansion targets, which shows that the management has good planning capabilities and is trustworthy. Judging from its current utilisation rate of above 70%, demand is also strong, as guided by the management. Based on its track record, we believe that Karex will continue to execute as promised.
What You Should Do
Investors should stay on the sidelines. Karex has strong fundamentals but we think that it is fairly valued for now.
Source: CIMB Daybreak - 24 April 2015
Target RM3.05 (Stock Rating: HOLD)
There were no surprises from Karex’s presentation at the Invest Malaysia conference today. Demand is still strong, especially from the tender market, and Karex is confident that it will fill the upcoming capacity slated for FY15. However, we think that this has been factored into the share price. We maintain our Hold call and TP, pegged to 23x CY16 P/E (10% premium to Hartalega). For exposure to rubber-related stocks, we prefer Kossan.
What Happened
Karex’s CEO Mr Goh Miah Kiat and Group Financial Director Mr Goh Chok Siang presented to a group of around 40 participants during the Invest Malaysia conference today. Karex is on track to achieve its capacity target of 5bn pieces p.a. by Jun 2015 and it does not foresee any issues in filling the new capacity, as it still expects strong demand from the tender market, particularly in Africa. Based on the joint studies by United Nations Population Fund/Population Services International (UNFPA/PSI) in Nov 2013, there is a condom shortage of 445m pieces in six African countries, which account for only 10% of Africa’s total population. As more new capacity comes in, Karex plans to shift some of its focus to the OBM business. It is toying the possibility of another M&A exercise to expand its OBM business from the current 7% of total revenue in 1HFY15 to 20% by 2020. Karex also aims to launch “One Brand” condoms in Malaysia and Singapore in Aug/Sep 2015, before launching it in China, Hong Kong and Taiwan by year-end. In terms of OEM, Karex is setting up a subsidiary in Spain, with a local sales team to target European customers, especially supermarket chains and private labels. Given that the selling prices of other OEM manufacturers in Europe are much higher, Karex is confident that it will successfully capture a significant share of the European market. It will probably take another six months for us to see any earnings impact from the chain stores in Europe. Karex estimates that every 10% movement in US$ against RM will have 4-5% impact on its earnings.
What We Think
There were no surprises from the presentation. Karex has been largely on track to meet its expansion targets, which shows that the management has good planning capabilities and is trustworthy. Judging from its current utilisation rate of above 70%, demand is also strong, as guided by the management. Based on its track record, we believe that Karex will continue to execute as promised.
What You Should Do
Investors should stay on the sidelines. Karex has strong fundamentals but we think that it is fairly valued for now.
Source: CIMB Daybreak - 24 April 2015
