Condom maker Karex to capitalise on rising demand

Karex Bhd is poised for a good year ahead, capitalising on the rising global demand for condoms that is expected to grow at a compounded annual growth rate (CAGR) of 8% to 9% over the next 10 years.

The global condom market is anticipating a strong growth trajectory in the coming years, evident by its projection to double up between Us$19bil and Us$23bil by 2032.

In a note, Kenanga Research said this surge will be on the back of heightened consumer awareness, a diverse array of products catering to varied preferences and global initiatives to curb sexually transmitted diseases and sexually transmitted infections.

“Being the world’s largest condom manufacturer with a 20% market share, while already annually producing 5.5 billion pieces, Karex is set to ride the rising demand.

“The strong growth of the condom industry focusing on high-margin products will take its profitability to a higher level. It is penetrating high-growth markets with premium offerings, backed by innovation and strict compliance with international standards,” Kenanga Research said.

Another segment, the personal lubricant market, is also poised to grow at a 10-year CAGR of 9.65% during 2023 to 2030, as per the Grand View Research.

According to Kenanga Research, it expects a 24% growth in Karex’s total revenue for both this year and next across its commercial, own brand manufacturing (OBM) and tender segments.

For its first quarter ended Sept 30, 2023 (1Q24), Karex recorded a net profit of Rm5.26mil, up from Rm2.29mil a year ago.

Kenanga Research said despite stiff competition and a negative impact from the Covid-19 pandemic, Karex shifted its focus especially in its commercial and OBM, with these segments yielding gross profit margins significantly higher than the tender market.

“In 1Q24, despite a slight reduction in revenue, Karex achieved impressive increases in both gross profit and operating profit margins, underlining the company’s resilience and the effectiveness of its strategy in targeting more profitable segments,” Kenanga Research said.

Karex is known for its cutting-edge research and development that results in high-quality products according to current trends, strict compliance and agility, particularly in growing markets like China.

The research house added that Karex’s profit margins are likely to see an uplift from its advantageous product mix, as well as stable cost of raw materials and freight.

“This is expected to lead to a substantial net profit increase, with a projection of a 113% rise to Rm22mil in FY24 and a further 88% growth to Rm42mil in FY25,” it said.

Kenanga Research has an “outperform” rating on Karex, with a higher target price of RM1 from 78 sen previously. It noted that the robust industry outlook, strong growth prospects and favourable business climate will boost Karex’s outlook and place the group on a promising upward trajectory.