KAREX (5247) - Karex Berhad - More excitement ahead
Target RM4.96 (Stock Rating: ADD)
Karex’s 1HFY6/15 net profit made up 43% of both our and consensus’ full-year forecasts. We deem the results in-line as we expect a stronger 2H when its new capacity starts contributing. While 1HFY15’s revenue was down slightly yoy, impacted by the weaker sales of probe covers and lubricating jelly, 1HFY15’s core net profit jumped 18.9% yoy due to better product mix, lower latex cost and favourable forex rates. We keep our FY15-17 EPS forecasts but raise our target price as we lift our target P/E (from 20x to 23x CY16 P/E), bringing it into line with a higher Hartalega P/E (10% premium to Hartalega). We maintain an Add rating. The proposed bonus issue and private placement yesterday, indicating potential acquisitions, are rerating catalysts. No dividend was declared during the quarter, as expected.
Flat 1H revenue but margins intact
Karex’s 1HFY15 revenue was flat yoy (-0.3% yoy) while core net profit rose 18.9% yoy. The slightly lower top line was impacted by the revenue decline in probe covers and lubricating jelly (-21.8%) which was impacted by the lower lubricating jelly sales in 1Q due to the lower sales to commercial customers. The stronger revenue from condom (+0.7%) and catheters (4.9%) was insufficient to offset the impact. Despite the lower selling prices of condoms in 2Q as Karex passed back some of the benefits from the stronger US$ against RM and lower raw material prices to some of its customers, condom revenue grew slightly in 1H, thanks to the stronger growth of 12.4% in 1Q and maiden contribution (revenue, RM6.7m; net profit, RM320k) from Global Protection in 2Q. While Karex’s manufacturing capacity increased from 3.5bn pieces in FY14 to 4bn pieces in 1HFY15, utilisation rate was slightly higher at 76.4% in 1HFY15 versus 75% in FY14 which indicates that volume has continued to grow. 1HFY15’s operating margin rose 4% pts yoy due to lower latex price, favourable US$/RM rate and increase in sales of higher-margin products.
Qoq performance stronger
2QFY15’s revenue increased 9.8% qoq while core net profit rose by 13.4%. The better results were driven by better performance from all segments, as well as the inclusion of contributions from Global Protection. Its EBIT margin increased by 2.2% pts due to higher sales of higher profit margin products, favourable forex and raw material prices.
Source: CIMB Daybreak - 27 February 2015
Target RM4.96 (Stock Rating: ADD)
Karex’s 1HFY6/15 net profit made up 43% of both our and consensus’ full-year forecasts. We deem the results in-line as we expect a stronger 2H when its new capacity starts contributing. While 1HFY15’s revenue was down slightly yoy, impacted by the weaker sales of probe covers and lubricating jelly, 1HFY15’s core net profit jumped 18.9% yoy due to better product mix, lower latex cost and favourable forex rates. We keep our FY15-17 EPS forecasts but raise our target price as we lift our target P/E (from 20x to 23x CY16 P/E), bringing it into line with a higher Hartalega P/E (10% premium to Hartalega). We maintain an Add rating. The proposed bonus issue and private placement yesterday, indicating potential acquisitions, are rerating catalysts. No dividend was declared during the quarter, as expected.
Flat 1H revenue but margins intact
Karex’s 1HFY15 revenue was flat yoy (-0.3% yoy) while core net profit rose 18.9% yoy. The slightly lower top line was impacted by the revenue decline in probe covers and lubricating jelly (-21.8%) which was impacted by the lower lubricating jelly sales in 1Q due to the lower sales to commercial customers. The stronger revenue from condom (+0.7%) and catheters (4.9%) was insufficient to offset the impact. Despite the lower selling prices of condoms in 2Q as Karex passed back some of the benefits from the stronger US$ against RM and lower raw material prices to some of its customers, condom revenue grew slightly in 1H, thanks to the stronger growth of 12.4% in 1Q and maiden contribution (revenue, RM6.7m; net profit, RM320k) from Global Protection in 2Q. While Karex’s manufacturing capacity increased from 3.5bn pieces in FY14 to 4bn pieces in 1HFY15, utilisation rate was slightly higher at 76.4% in 1HFY15 versus 75% in FY14 which indicates that volume has continued to grow. 1HFY15’s operating margin rose 4% pts yoy due to lower latex price, favourable US$/RM rate and increase in sales of higher-margin products.
Qoq performance stronger
2QFY15’s revenue increased 9.8% qoq while core net profit rose by 13.4%. The better results were driven by better performance from all segments, as well as the inclusion of contributions from Global Protection. Its EBIT margin increased by 2.2% pts due to higher sales of higher profit margin products, favourable forex and raw material prices.
Source: CIMB Daybreak - 27 February 2015
