This article first appeared in The Edge Financial Daily on January 25, 2018 - January 31, 2018

KUALA LUMPUR: Rubber prices are likely to remain rangebound this year amid subdued demand, said Karex Bhd, the world’s biggest condom maker.

“Demand [for rubber] has been low as there has been an increase in the switch towards the use of synthetic materials [such as in] Europe and the US,” Karex group chief executive officer Goh Miah Kiat told reporters on the sidelines of the Invest Malaysia 2018 conference yesterday.

As of writing, the price of rubber was at RM4.78 per kg.

Goh said Karex’s focus over the next three years is on the value proposition, adding that it will be rolling out more brands and assessing its operational costs.

For one, the group is looking at producing thinner condoms amid increasing demand. This is in line with its plan to launch new products under its original equipment manufacturer segment where most of its earnings come from.

“The thinner the condoms, the better people prefer the products and this also lessens the cost of material,” he said.

On its packaging material costs, Goh said Karex constantly monitors oil prices and is mindful it has to quickly transfer any extra cost to its customers. Reuters reported that Brent crude futures closed at US$69.79 (RM273.58) a barrel yesterday.

He also said Karex had allocated about RM90 million over the next three years for automation. “We hope to bring our labour costs down by about half over the next five years.”

On prospects for the next financial year ending June 30, 2019 (FY19), Goh expressed optimism about Karex’s future. “From the industry’s perspective, there hasn’t been any fundamental change.”

He noted that demand had been picking up in the last few quarters, but the group is hoping to see more stability.

“I think definitely this year is going to be a recovery year. We should start to see how we recover and there’s a lot of opportunities that we see in our branded products and also growth,” said Goh, adding that new product launches will provide Karex more opportunities to revise its selling prices.

Karex saw its net profit drop 58% year-on-year to RM27.95 million in FY17, due to a lower gross profit margin and other one-off expenses in relation to corporate exercises. Revenue, however, rose 5% y-o-y to RM361.45 million.