Karex reported a 3QFY25 core net profit (CNP) of RM6.4m (-26.5% yoy), bringing 9MFY25 total to RM11.9m (-43.4% yoy). The results exceeded our expectations but missed consensus estimates, accounting for 148% of our full-year forecast and 63% of consensus predictions. The earnings beat on our end was due to stronger-than-expected sales demand for condoms and lubricants in the tender markets.
The Group declared an interim dividend of 0.5 sen, matching 3QFY24.
3QFY25’s CNP fell by 26.5% to RM6.4m, primarily due to increased operating expenses from the minimum wage hike in Thailand and Malaysia, and heightened logistics costs.
We expect upcoming earnings to remain relatively flat qoq, premised to the disrupted order flow caused by ongoing US tarif uncertainties.
We have raised FY25/FY26/FY27 earnings forecasts (by 82.5%/71.5%/40.8%, respectively), to reflect recovery in sexual wellness tender market and higher GP margins from softer raw material prices.
Upgrade to HOLD with a revised TP of RM0.73 (from RM0.42), pegged to 26.0x PE multiple on FY26F EPS of 2.8 sen, ascribed with three-star ESG rating.
Exceed expectations. Excluding forex loss (+RM0.5m), provisions in write-offs for inventories (+RM0.8m), Karex reported a 3QFY25 core net profit (CNP) of RM6.4m (-26.5% yoy), bringing the 9MFY25 total to RM11.9m. The results largely exceeded our expectations but missed consensus estimates, accounting for 148% of our full-year forecast and 63% of consensus projections. The earnings beat on our end was due to stronger-than-expected sales demand for condoms and lubricants in the tender markets.
Dividend declared. The Group declared a single interim dividend of 0.5 sen for the quarter, matching 3QFY24.
YoY. 3QFY25’s CNP fell by 26.5% to RM6.4m, primarily due to increased operating expenses from the minimum wage hike in Thailand and Malaysia, and heightened logistic costs. This is witness by 2.2%-pts reduction in operating margin despite a 6.8% yoy increase in revenue driven by strong condom and personal lubricant sales, particularly in the tender market. Notably, Sexual Wellness segment registered a 19.6% yoy drop in GP, while the Medical segment posted a turnaround to gross profit of RM0.4m from a gross loss of RM1.5m, supported by 21.4% yoy surge in segmental revenue.
YTD. 9MFY25’s CNP declined sharply by (43.4% yoy) due to a 1.6% yoy drop in revenue from lower international Tender market orders and elevated production costs. The GP margin fell by 2.6%-pts yoy to 30.7%, reflecting higher cost of sales.
QoQ. Karex posted a turnaround in 3QFY25, rebounding from a core loss of RM1.9m to a CNP of RM6.4m, as revenue rose 26.9% qoq, driven by increased condom and lubricant sales to the Commercial and Tender markets. The revenue growth more than offset the impact of minimum wage hike in Thailand and Malaysia.
Outlook. We expect upcoming quarter earnings to remain relatively flat qoq, given the disrupted order flow caused by ongoing US tariff uncertainties. This situation is likely to prompt a “wait and see” approach from comer-based clients. While Trump’s subsequent 90-days tariff truce (10% for Malaysia and Thailand from 9 Apr to 8 Jul, 2025) has led to some clients stocking up, we believe the tariff may reduce sales volume for Karex in the US market in the coming quarters.
Earnings Revision. Following the reported results, we have raised our earnings forecasts for FY25/FY26/FY27 by 82.5%/71.5%/40.8% respectively to reflect the recovery in sexual wellness tender market and higher GP margins from softer raw material prices.
Valuation. We upgrade our recommendation to HOLD (from SELL) with a revised target price of RM0.73/share (from RM0.42), based on a 26.0x P/E multiple applied to our FY26F EPS of 2.8 sen. This target price reflects a 0% ESG premium/discount, in line with the company's three-star ESG rating. We believe there is room for growth, but not in the near term, particularly given the global economic uncertainties.
Risk. (i) Tender market disruption, (ii) Muted Commercial market segment, (iii) Decline in global government spending on birth control, (iv) Slow uptake of new synthetic rubber condoms, (v) Challenges in raising prices to maintain profit margins.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.212042 | 4.248408 |
| EUR | 4.921000 | 4.929487 |
| CNY | 0.591903 | 0.592919 |
| HKD | 0.540309 | 0.544492 |
| SGD | 3.268153 | 3.293573 |