Can shares in condom giant Karex (5247.MY) bounce back?

The Kuala Lumpur-based company is the world’s biggest maker of latex prophylactics and is reaping the incentives of close proximity to Malaysia’s rubber plantations. Karex manufactures condoms for clients adore Reckitt Benckiser ( RB.UK ), whose Durex brand is the world’s second-biggest. Between last summer and the begin of this year Karex shares rallied 50%, however have actually been weaker in 2016. At concerning MYR3.90, now could be an excellent time to accumulate shares.

In 2015 Karex’s stock enjoyed tailwinds from favorable movements in the value of the Malaysian ringgit and weaker commodity prices. The company bills its clients in U.S. dollars, meaning the more powerful greenback has actually helped fatten its bottom line, as its outcomes are reported in Malaysian ringgit. Considerably the company’s costs – mainly locally-sourced rubber – are in the beaten down Malaysian currency.

Karex shares have actually recently been strike by a rebound in the rate of latex. The raw material, Considerably of which is sourced from Malaysian plantations, fell 60% between 2011 and last year, hitting a reduced of sub-400 Malaysian sen a kilogram. Southeast Asian governments have actually taken actions in 2016 to prop up sagging rubber prices. Firstly, Malaysia says it will certainly ‘rubberize’ concerning 600 miles of its roads to stoke demand. Secondly, Kuala Lumpur, along along with Indonesia and Thailand, will certainly collectively cut rubber exports for 6 months to nudge up prices.

Nomura analyst Marcin Spiewak, a Karex bull, thinks the market is over-concerned concerning a rise in rubber prices this year, which is placing stress on the stock’s rate short-term. He thinks the company Can easily pass on any sort of slight improve in raw material prices to its customers. Spiewak additionally expects the rubber market to be oversupplied for two years. He’s got a target rate on the stock of MYR5 a share – concerning 30% greater compared to its current share price.

Spiewak likes Karex’s strategy. The company is now expanding in to niche portions of the condom game, too as cultivating itself as a brand. He points to the recent acquisition of TheyFit for $1.3 million. TheyFit sells custom-sized condoms online, and importantly, has actually US Federal Drug Administration and European Union approval. The Nomura analyst reckons the deal will certainly insight Karex sell its own brands in to the these markets. Selling its own condoms could lift operating margins lasting and enhance profits, Spiewak reckons.

The global condom market looks adore it’s in rude healthiness too. After all, it could be argued birth-manage is virtually recession-proof. Still, it’s expected that condom revenues and volumes will certainly grow by an standard 10% per year through to 2020. The biggest threats this market faces are probably an HIV vaccination or the discovery of a new, a lot more convenient way of birth-control. Neither look adore they’re on the cards any sort of time soon. There are brand-new threats to people’s sexual healthiness though: The Centers for Illness manage and Prevention in February reminded travelers to usage condoms amid an outbreak of the mosquito-borne Zika virus. Broker Hong Leong says Zika could lead to a lot more necessity for condoms as couples in portions of Latin America the Caribbean stay clear of pregnancy. Clinical trials for a vaccine aren’t expected to begin for 18 months.

The outlook for Karex’s earnings additionally looks appealing. Brokers believe earnings per share could rise 50% in fiscal 2016 to MYR0.13 and sales could improve by a third to concerning MYR400 million. The company ought to additionally improve its free money flow over the next two years. This means Karex has actually a lot more cash left in the piggy bank after paying suppliers and capital outlay, etc.

On that note, the company announced a bonus share issuance that will certainly see existing shareholders handed one extra share for each two they hold. Companies normally do this once they’re in a healthy and balanced financial placement and hope to enhance their stock’s liquidity. While share bonus issuances improve the variety of shares traded on the open market, they don’t dilute current stock holders. They Can easily however, affect earnings per share and share price. Karex says it will certainly announce the entitlement date for the share bonus later this year subject to approval. Chue Kwok Yan, an analyst at Affin Hwang Capital, reckons the announcement could provide a “positive boost” to the stock’s rate in the near term.

I'm still here and I totally agree w robert168.

First thing first, let's enjoy d Komtar catalyst in April 2016. Only then, we talk abt Genting las...

@914601117, getting bonus shares is equivalent to getting paid dividend. The main difference between d two is one is non-cash and another is cash. Karex management is mainly focusing to reward mostly the long term shareholders.

At time of writing tis, DJI is +30

@8wpwtmt8, queuing to sell at 2.25? U must be so desperate to trash OWG at all cost right now. Relax bro. OWG is and will continue to be a gem stock if u can wait a little longer.

ufis... yes, I see such similarities too. I hope 2016 will see those similar patterns again. However, wat is significantly different in 2016 was d RM1.20 retracement twds end-Jan 2016 until b4 CNY. Many were caught by tht falling knife and had to scramble for cover. I'm pretty sure it was caused partly by d call warrant expiry twds end-Jan 2016 and the sudden recovery of Ringgit. Anyway, let's wait and see how it will unfold from now until the bonus xd in April 2016. Hope all is well with you and we will catch up sometime soon. Cheers...

@Kok Leong, u dun need to bother abt wat other ppl told u earlier. Most importantly is tht u r decisive in yr investment judgements and tht u make money & be happy w watever u r doin at d end of d day.

I love Karex and its management team a lot as they continuously work hard to enhance its shareholders' value of those who believe in them. Thanks to Mr MK Goh and yr entire team. I'm proud to be associated w Karex.

Tht's a possible 60-yr revenue stream for OWG just from Komtar alone!!! Add on d 20th Century Fox Theme Park in Genting Highland and others, OWG's future prospects will be fantastic.

Congrats to those who persevered d long dull days and continued to believe in OWG despite so. This is wat I called value investing over a medium term as opposed to being an opportunistic trader moving in and out of a stock every other day. If u continue to believe in OWG until d launching of 20th Century Fox in Genting, I bet u will b smiling all yr way to d bank many times over. All d best to only d true believers.

I believe d re-rating catalyst is driving today's momentum. Hopefully all is well for d next 18 mths or so.

Meaning, there's actually no dilution of d EPS resulting from d share placement exercise then. So, wats d management's strategy of raising capital without issuing any placement share?

Big sharks trying to shake up those weak souls. Persevere and wait for d q results announcement.

Gong Xi Fa Cai to all OWGians here and wishing all a very happy, healthy & prosperous CNY of Fire Monkey 2016.

oh yeah, another thing tht is driving up our mkt tis morng is an 8% spike in crude oil price overnight.

as far as I know, Karex never consider using its USD forex gains to finance its growth agenda. bcoz forex gain or loss is merely temporary. sometimes u hv more, and other times u hv less of forex. as long as d profit from REAL biz activities r intact, i'm fine with it.

everyone knows tht Karex is a good stock with clear growth agenda in d pipeline. I wonder why ppl cud not see tht? well, everyone cud in fact see it clearly. but, its just tht d mkt 'big fishes' are out to create some price havoc to gain some CNY angpow money. Dun worry, they will come around to support tis counter again once they r done getting wat they wanted.

someone is collecting on weakness at d moment. once done, hopefully things will brighten up again.

usd has weakened from yesterday's around 4.25 to 4.15 now. u see, when USD strengthened yesterday, Karex did not move up as much as Kossan & TopGlov. somehow when USD dropped today, Karex just went down without much justified correlation with USD's movement yesterday when it supposed to go up. this is d kind of mkt volatility we r facing everyday these days.

oh my bet, its weakening of USD

it's just temporary. just hang in there.

...strengthening of USD is d main reason.

HAHAHA....!!!

The Zika virus outbreak will lead to increased demand for condoms in the near future. Karex and other condom manufacturers will benefit from this outbreak. Why? Bcoz the Latin American and Caribbean countries hv asked their female population to delay getting pregnant for at least 2 years due to the outbreak.

@robert168, yea, there r too many short-term goreng kakis around here. I hope they will meet their match someday and get themselves exterminated for good.

@thinkkman, do u even own 1 single share in OWG at d moment? If u dun, u hv no right to be here writing shit. But if u do, u wud not hv written any of those shit earlier. Why even bother to own d share when u r so critical of d company? Either way to me, u belong to those whom I hv described earlier as market speculators/manipulators who r out to prey on those who genuinely wanting to invest ethically. I pray tht u and others alike will sleep well every nite doin wat u r doin all this while. FYI, we hv enuf mkt volatility at d moment and we do not need anymore from u. If u hv nothing better to add here, then I suggest u to shut yr gap up and/or to obliterate yrself gracefully from here permanently.

Better still, say it wud go into receivership (PN-17) lor... I am out of tis freaking place until more sane ppl arrives.

If u ppl want to make tis a 'healthy' place to discuss/share regarding OWG matters, then pls write smtg constructive for the benefit of others and not spilling shit all over d place here. I read until I wanna vomit... Shame on u ppl who are market speculators/manipulators and trying to make money by deceiving others. I bet you will not enjoy and be happy w all monies made tht way.

From d very beginning of time, everyone knows tht d private placement WILL dilute d current share price. So wat? As long as we know d intention/purpose of raising additional funds thru private placement, all shareholders shud b fine with it. We dun need ppl like u to blow the matter out of proportion and create mayhem for others.

@8wpwtmt8: On 18 Jan 2016, u posted here with this: Private placement is a very bad news. If it is indeed such a bad exercise, why then did OWG shareholders approved such resolution in d EGM in d first place? It is bcoz shareholders understands tht OWG management require additional funds to pursue its growth agenda tht shareholders approved it. Why then now is everyone harping on it tht it is bad and diluting d share price? I believe this is merely all bullshit rumor mongering by speculators trying to make some quick bucks for themselves.

@8wpwtmt8, r u saying u got a reply from OWG today on a weekend? If yes, I'm truly impressed w yr achievement.

It cud hv been beaten down by warrant issuer which is due to expire end of tis month.

Why is this counter got beaten down so badly? Anyone can share pls?

Supported w some additions.

Sleep early, get well rested and be ready for action tmrw. Gd nite guys.

Hopefully, OWG will be d Darling of 2016 and will rise to unchartered territories. All d best!!!

I strongly believe OWG will buck against d trend well supported by a one United Invincible Force.

Well summarized. Fyi, OWG has now closed at an all-time high and I predict a breakout soon. May d best be with all here who truly believe in OWG's potentials and adopt value investing strategy. Since going public, OWG's ROI is more than 200% now. Isn't tis stock fantastic???

For me is very simple. Just ride on d mkt volatility and hang tight as it is just temporary. If u truly understand OWG's biz model and its growth agenda, then there is really nothing much to worry abt. I take a medium term view of my OWG investment.

I guess it is so too.

Good article, rikki. Thanks.

Jump in and BUY NOW lahhhhh..... Wat r u waiting for? Wait for d train to pass u by further until u only smell it's fumes??? Tis is almost a sure thing la... How good some more can u get nowadays?

I dun foresee a massive selling tmrw coz d bonus issue is just 1/5 extra only. If u see closer, d share price did not move up much towards d entitlement date. So, there's really nothing to worry abt.

haiya... johnny cash, I'm sure u can easily afford a more canggih phone tht w give u greater reliability lah. New year, new phone mah...

hello Kana Miko, it's not me. it's <johnny cash> tht we need to ask from.

The GITP expansion in Genting w bring 'explosive' growth potential to OWG. I hv been told recently tht traffic back to KL on d Karak H'way is jammed from d Genting Sempah tunnel ALL THE WAY back to d Gombak Toll on major holiday breaks. Where do u think such traffic is coming from? Pretty sure not from d east coast. This is despite d 20th Century Fox Theme Park is still not ready at d moment. I cannot imagine wat happens once completed. The rest is for u to imagine. With lower Ringgit value, most ppl prefer local holiday destinations with quality attractions. As I wrote here before, ppl (local and esp. foreign tourists alike) tend not to 'sayang' their wallets when they r on holidays enjoying themselves. They play, eat, play, eat and eat and eat and, be happy when done w enjoying themselves.

muscle, I follow my gut feeling and want to get to know d company's biz model and its management's biz ethics better when making my investment decisions. While all d PE, EPS, etc. indicators are important, I tend to value those former attributes more. Some will try to sway others by harping on those indicators to paint a bad picture of a particular stock for their own benefit/gain. Good luck to them as it won't work on me. Haha...

tht johnny cash 'fong fei kei' on us already.

muscle, he is referring to 2.85 post-bonus 1 for 5 la...