The company is constantly undertaking price hikes to pass on higher operating costs, which will continue to take place 

by FAYYADH JAAFAR / pic by AFP

KAREX Bhd is expected to see an increase in orders for its products driven by lifting of lockdown measures locally, and the gradual relaxation of social measures globally. 

CGS-CIMB Securities Sdn Bhd analyst Walter Aw noted Karex’s orders are expected to increase by 20 to 30% in the second half of financial year 2022 (2H22). 

“On top of that, Karex is constantly undertaking price hikes to pass on higher operating costs (raw material and freight costs), which will continue to take place. We expect Karex to report stronger results in 2H22, as we believe the worst is over in 1H22,” Aw wrote in a report on the company yesterday. 

He added Karex’s glove division is well-positioned to benefit from the rising demand in the medical sector. 

For its maiden glove plant in Thailand, Karex plans to begin trial runs for its two maiden dipping lines (total 420 million pieces per annum) in the third quarter of 2022 (3Q22), while sales contribution from its glove segment should kick in towards 4Q22, he added. 

“We believe Karex is likely to break even at best for its glove business in the initial stages, given the current weak operating environment (declining average selling prices and a rise in global glove production capacity),” he added. 

For these reasons, Walter maintains his ‘Hold’ rating on Karex with a lower trading price target of 40 sen (0.9 times of financial year 2023 (FY23) price to book value [P/BV]). “While we expect stronger results in quarters ahead, we expect the group to post losses in FY22 (second financial year in a row) which justify current valuations of 0.9 times P/BV.”

The condom manufacturer reported a core net loss of RM2.6 million in the 2Q of fiscal year ending June 30, 2022 (2QFY6/22), excluding one-off losses of RM0.2 million in inventory write-off. 

This brought 1HFY6/22 core net loss to RM1.4 million (from core net profit of RM9.9 million in 1H21), which missed the broker’s expectations of a RM4 million profit in 1H22 due to lower sales volume, increases in input costs and a spike in operating expenses. 

Aw noted Karex has been facing challenges in its operations due to factors such as higher input costs (especially silicone oil), distribution expenses and higher operating costs (distribution expenses and Covid-19 related costs). 

The report also stated that Karex is expecting higher demand for condoms from many countries.