KUALA LUMPUR (Oct 9): Karex Bhd (KL:KAREX) surged on Thursday as two research houses initiated coverage of the world's largest condom maker with 'buy' calls.

On Thursday, the stock settled 12.5 sen or 14.71% higher at 97.5 sen, valuing the group at just over RM1 billion.

CIMB Securities assigned a target price of RM1.60 to the counter — the highest among analysts — forecasting a structural earnings upcycle driven by the mass-market commercialisation of its patented nitrile synthetic condom. 

“Its exclusive global partner (Customer D) has expanded distribution to 18 countries, with a full global roll-out underway. 

“This marks a shift from R&D (research and development) investment to earnings delivery, as nitrile production capacity is set to grow five times to 900 million pieces per annum by end-June 2028,” said the research firm in a note on Thursday.

CIMB said Karex is well positioned to capitalise on its first-mover advantage in the synthetic-nitrile-condom segment, backed by premium pricing and more than 50% gross margins for this product.

The house forecasted a three-year core net profit compound annual growth rate (CAGR) of 91.3% for Karex for the financial year ended June 30, 2025 (FY2025) to FY2028.  

CIMB further added that earnings had bottomed out for Karex in FY2025, impacted by both structural and cyclical headwinds, as well as upfront R&D and certification costs for its nitrile condom.

The house said that FY2025 represented an operational turning point for Karex, with the glove venture fully wound down, easing foreign exchange headwinds as the ringgit normalised, and core condom operations on a firmer footing. 

“With these transitory pressures fading, FY2025 marked both the trough and the pivot — drawing a line under legacy drags and unlocking a multi-year growth cycle, led by its game-changing nitrile synthetic condom.”

CIMB said that despite Karex's smaller market capitalisation, its target price-earnings (PE) multiple is in line with the weighted average 2027 PE of global intimate wellness peers of 18.8 times.

“At just 10 times CY2027 (calendar year 2027) PE, valuations remain undemanding relative to its superior growth prospects, while offering solid dividend yields of 1.9%-5.9%,” the house said.

Separately, AmBank Research started coverage of Karex with a target price of RM1.05, ascribing 23 times forward PE to 2027 earnings per share.

The house anticipates Karex’s net profit to grow at a four-year CAGR of 15% over FY2024-FY2028, driven by successful commercialisation of synthetic condoms.

Karex has an annual production capacity of more than five billion pieces of products, and exports to over 140 countries.