Condom maker Karex Bhd is seeing some interesting upward movements of late. Over the past 5 days, the counter has gone up 10.1% to close at 87 sen on Apr 9. It had even reached its 52-week high of 90 sen on April 8 before it succumbed to profit taking.

Fundamentally, investors are probably excited over Karex’s high-margin new product - synthetic condoms - which is thinner and thus require less material to produce with improved heat sensitivity. It is currently talking to key OEM clients with a product launch targeted in next year.

There are plans to add five more dipping lines in its Thai plant from only two lines for the entire group at present. This will boost its annual capacity by 2.5x from 200 million pieces at present to 700 million pieces by CY24.

It remains hopeful to secure CE certification, which is compliance with EU safety, health and environmental protection requirements, by June 2024, followed by US FDA approval in 1HFY25.

Analysts like Karex for its leading market position and global reach in the fast growing condom industry. The industry is expected to chart a CAGR of 8% to 9% over the immediate term.

Karex is also strong in terms of R&D and product innovation to keep abreast with changing customers’ preferences, especially for high quality innovative condom products. In addition, there is a strategic shift in moving up the value chain.

Its 1HFY24 top line declined 6% year-on-year mainly due to slower condom sales in the tender market, partially offset by robust sales of personal lubricants. However, its net profit almost tripled thanks to a shift towards higher-margin products amidst a slowdown in the tender market, stabilised input cost and favourable exchange rates. Its gross profit margin rose to 33% from 24.7% a year ago.

Karex is also enhancing efficiency in its tender business, which accounted for 16% of 1HFY24 turnover, by automating testing process to handle standardised client orders.

The firm has already deployed five automated electronic testing machines in its plants in Thailand and Klang, with a testing rate of exceeding 200 pieces per minute versus 40 pieces per minute if done manually.

Karex should continue to draw in more investors given its size and improving margins, translating to better share price performance moving forward.