@Tryingtogetrich

I'm definitely bullish on Karex, although I think it's important to take note that the increase in their OBM sales from 7% to 15% is pro forma gain as a result of their recent strings of acquisitions, and not from organic growth. Whether they will be able to effectively deploy their newly acquired brands for some decent cash flow is yet to be seen, although I am a bit optimistic, just not too much. But yes, their position as the biggest condom manufacturer does deserve some merit (1) as a reflection of management ability (2) as you've said, gaining economics of scale. Also at this price, even if they failed, from my estimates, its still pretty safe (in other words, its fairly cheap even if they failed, its damn cheap if they succeed).

Although I am a bit concern of Karex ability to remain liquid in case of a recession. Condom demands will still exist, and from the sources I've read,it might actually increase. It's just that, credit might be tight, and they might have trouble managing working capital. But that's the risk you have to take for growth. And hopefully, management will take proactive measure to grow their cash reserve while their OBM segment gets to a profitable scale, even if it may be unpopular (e.g. no dividends)

One thing I like about Karex is that its declining earning is mostly self-inflicted. They could just stop expanding their OBM segment and focus on the OEM, tender, etc segment. But is that really in our best interest as shareholders, don't we want growth! Do we really want them to keep selling condoms at RM0.10 per piece to Durex,while they resell it for RM2 per piece . How is that not theft!! They made more than RM200 mil from their IPO, what better way to take advantage of their market position than build their brand. If they don't, some condom company in Thailand surely will. They're acting fast, thats good. But lets just hope they're careful too.

@RainT

All the best!

@RainT

It's perfectly reasonable to not invest in a stock because it's not making enough profit. But to use the numbers in the quarterly reports as an indicator to a company's future performance makes little sense because there's nothing indicative about a 3 month operating period. Karex has been around for more than 30 years. It's been through the fall of the soviet union, the transfer of hong kong to China, the asian financial crisis, the global financial crisis, not to the mention all other crisis that happened in between (in Malaysia and abroad). So to expect a quarterly report, 3 months, to tell you anything useful about a company future prospects 5 years or more from now is just absurd. Heck, even 2-3 years means little. Most GOOD financial analyst use AT LEAST 5 years.

Their earnings are declining, but knowing that alone is not enough because It's never that simple. You have to ask why, how, is it structural, is it economic or just accounting,etc. The same thing applies if earning were going up. It's a lot of work, thus proper research is required.

And its too soon to judge their OBM segment, their last major acquisition was only last period, their venture into Singapore and Thailand is only by end-FY19.

@witan

I acknowledge your concern. When I first valued this stock, I actually discounted the prospect of their OBM segment ever succeeding by using the numbers in their prospectus instead of their more recent financial statements. In short, I was trying to value pre-IPO Karex, which gave me a valuation of 0.57-0.70 sens per share, a decent margin of safety when I first bought it at 0.40 sens.

Although, post-IPO Karex seems to be in a better position to weather the tough environment in OEM segment, In part due to their higher capacity (x2 since IPO), which allows them to better manage fluctuations in material cost, and gain an extra 5% market share.

But of course, the possibility that the OEM segment may deteriorate to a point that severely jeopardizes Karex's going concern still exist, especially considering their reliance of said segment's cash flow to fund their OBM segment's working capital. It is hoped that, in the worst case scenario, they could liquidate their unused assets fast enough to fund their cash outflows. Nevertheless, I remain confident that the current downturn in the OEM segment is temporary, mainly due to condoms having a substantial role in ensuring safe sex and keeping STDs at bay, an important public health care policy in most countries, thus ensuring its demand. They also still have a substantial amount of trade receivables at around RM60 mil to help cushion themselves.

I'm also pretty optimistic of their OBM segment, mainly due to their acquisition of ONE brand, which apparently was the 4th largest condom brand in the US (as of 2014). Their acquisition of Pasante is also not bad, a decent brand in the UK. If they were to start off their branding from scratch, I wouldn't be as optimistic because it would take a lot more time,money, with far less chance of success. Although, I'm not betting that they would beat the likes of Durex, Okamoto, Trojan, etc. But they don't need to, they just need to get a good slice of the OBM market for some decent cash flow.

@SC

Care to explain?

Let me guess, your fibonacci, MACD, Stochastic Oscilators says so, LMAO!

@goreng_kaki Well STDs are on the rise,so maybe they should lmao.

I'm not concerned with the earnings since they're in a gestation period to expand their business, especially in the OBM sector. Thus, lower earnings is to be expected due to the high expense in building their brands, as seen in their income statement under distribution and administrative expenses.

Other factors such as cost of rubber,weak tender markets,etc. are cyclical,meaning they come and go. Karex has been in business for decades, its not new for them, so I have little reason to doubt their ability to weather the storm. In fact, it might be a good thing, weaker competitors will go bust leaving Karex, the biggest condom manufacturer in the world, with more market share.

The main concern should be their ability to stay liquid long enough until they achieve their expansion goals. Thus, people should look at their cash reserve and cash flow. Looking at the numbers, their cash flow has improved to RM15 mil compared to -RM38 mil last year, since they are no longer making acquisitions.

I value this stock at RM3 at least, it could be more. Not something that will happen anytime soon though, I give 4 - 10 years. Might be RM5 by then, a good x10 return with good dividend prospects.

@1151204499 If you're willing to wait long enough,it may even go beyond that.

@MingGoon How is TopGlove suppose to acquire Karex if the CEO keeps buying the shares or is owned by EPF and other asset management firm? Doesn't seem like an acquisition is possible, especially if the share price keeps increasing.

If you're "Investing" for the short term, my experience dictates that long term fundamentals should not get mixed up with short term gains/losses. There is no logic in believing that Karex 5+ years prospects has been decided based on stock market movement/financial results from a single day, week, and even even a year. Stick to your fibonaccis or moving average and whatnot. Short term strategies for short term trades.

Its not likely,even if they wanted to,they can't since the Goh family has majority shareholding of about 53% if i'm not mistaken. Thus a hostile takeover will be too difficult and costly.

There's also no indication of a planned acquisition between both parties. I believe this uptick does not reflect the long term prospects of the company, thus should not be taken too seriously. It took TOPGLOVE about 10 years to go from RM0.45 to rm5++. If KAREX were to achieve its goals, it may take this long too. Prices below rm3 makes Karex cheap imo, which makes the price now ridiculously cheap, if you're willing to invest in the long term.