Karex’s FY15 (Jun) results were in line, making up 99.6% of our and consensus estimates respectively. We maintain our BUY recommendation with an unchanged TP of MYR3.70 (COE: 9%, TG:3%, 14.9% upside). 4QFY15 net profit improved by 14.2% QoQ, and took FY15 earnings to MYR60m. The company also recorded a margin improvement for the quarter.

FY15 results. Karex’s FY15 results were in line, making up 99.6% of ourand consensus earnings forecasts respectively. 4QFY15 net profit grew 14.2% QoQ, and took FY15 earnings to MYR60m – led by higher sales volume and a better product mix. Margins also expanded for the quarter on the higher-margin product mix, favourable exchange rates and lower raw material prices. Its 4QFY15 EBIT margin improved to 24.7% (4QFY14: 21.8%).

Prospects. We are excited with Karex’s FY16 prospects. Management is optimistic on the demand of its products as condoms remain one of the most effective and sustainable approach es to prevent HIV/AIDS andsexually-transmitted diseases. Karex will also be bringing its flagship ONE condom brand to the Asia Pacific in 1HFY16 with an eventual view of distributing the brand to East Asia and Australasia by FY17.

M&A trail. Karex announced that it was acquiring a 100% stake in Medical-Latex (Dua) SB (MLD) from Beiersdorf AG for MYR13m earlier this month. We view the acquisition positively, given the strong synergistic potential with its existing operations. Karex’s net cash of MYR185.3m also puts it in a strong position to make further acquisitions down the road.

Maintain BUY. We keep our earnings estimates unchanged, pendingthe company’s analyst briefing later today. We maintain our DCF-derived TP of MYR3.70 (COE: 9%, TG: 3%) which implies a FY16F P/E of 28.7x. Karex is currently trading at 24.9x FY16F P/E, which is 1SD below its historical trading band of 28x. The key downside risk to our recommendation would be potential delays in executing its original equipment manufacturing (OEM) and own brand manufacturing (OBM) expansion plans.