Being on the Forbes Asia’ 200 Best Under A Billion List, is Karex Really a Good Company to Invest?

Background

Karex Berhad (“Karex”) started as a family business with a manufacturing capacity of only 60 million pieces of condom per annum. On 6 Nov 2013, Karex was listed on the Main Market of Bursa Malaysia Securities Berhad. Today, Karex has 3 manufacturing facilities across Pontian, Johor, Port Klang Selangor and Hat Yai, Thailand together with a workforce of 2,000 employees with the capacity to produce 4 billion pieces of condom per annum making it the largest condom manufacturer in the world.

Karex has the necessary licenses, certifications and accreditations to export to more than 110 countries across Africa, Asia, America and Europe. With these key licenses, Karex is readily able to supply to different geographical regions all across the world and provide its customers with flexibility to enter new markets. Besides manufacturing condoms, Karex also manufacture lubricating jelly and other medical devices such as catheters and probe covers. Karex also manufactures condoms under its own brands namely “Carex” and “INNO” which are mainly exported to the Middle Eastern countries.

Based on Financial Year (FY) 2015 full year results, Karex achieved closed to RM 300 million turnover, which is considered to be a small to mid size enterprise based on its turnover. Other aspects of the company’s latest financial results are illustrated in the table below.

Till date, Karex has only two full financial year results since IPO hence we shall analyse based on FY2014 to FY2015. Karex's revenue has increased 35.24% from RM219 million in FY2014 to RM 297 million in FY2015.

Net profit wise, Karex has also increased its net profit by a whopping 73% from RM 34 million in FY2014 to RM 59 million in FY2015. This is a great result as the magnitude of net profit increase is doubled of the revenue increase, showing improved resource utilisation, market share expansion and effective cost control. Net profit margin wise, Karex scores a 20.16%, which is consider high for a manufacturing company, and also an acceptable return of equity (ROE) at 10.26%.

On company’s debt, Karex has almost no debt with an ultra low total debt to equity ratio of 0.05. The company’s current ratio and cash ratio are of very high and superbly healthy value of 6.73 and 4.06 respectively.

In terms of dividend, Karex pays a small amount of dividend with a yield of only 0.96% which translates to an absolute value of 2.5 cents per share. This may be due to the fact that the dividend amount paid could not catch up with the rapid increase of its share price during these two years.

In conclusion, Karex is a small size enterprise with good fundamentals with very low company debt and good current and cash ratio. In terms of revenue and net profit consistency wise, it is still to early to tell from only two years of financial data. Looking at the Trailing Twelve Months (TTM) financial figures (based on released quarterly results till Mar 2016), both revenue and net profit of Karex are projected to increase in a healthy rate which will support continuation of its share price upward trend.

One notable aspect of Karex is that within less than three years of listing it has issued bonus share for three times with a 1:2 ratio. This means that the current price share price at RM2.6 is around RM8.775 if these three bonus share issue event have not taken place (RM2.6 x 1.5^3). This translate to a growth of 4.8 times within less than 3 years. Moreover recent good news regarding Karex being the 200 Best Asia under a billion company has caused the share price to increase for 5 consecutive days and breakthrough its RM2.48 resistance line. This shows that Karex has overwhelming attention from the public, resulting a high PE Ratio of 36. No doubt it is a good company to invest but key challenge for investors is to find a right price to enter.

Next quarterly results announcement should be on the month of Aug 2016 for Q4 results.

iVolume Spread Analysis (iVSA) & comments based on iVSAChart – Karex

On Karex’s 6-month weekly chart, the market is making a headwind as it broke above the resistance @ RM2.45 - RM2.50 level. The latest Sign Of Strength (green arrow) has overcome the supply around the RM2.45 level, with the uptrend looking good to retest the next resistance level @ RM2.70-RM2.75.

With the next quarterly results due for release this month, this could be smart money collecting ahead of expected good results announcement?

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This article only serves as reference information and does not constitute a buy or sell call. Conduct your own research and assessment before deciding to buy or sell any stock. If you decide to buy or sell any stock, you are responsible for your own decision and associated risks.