KAREX (5247) : Karex Berhad - Still see strong demand
Target RM4.08 (Stock Rating: ADD)
Karex’s 1QFY6/15 net profit was in line with expectations, at 20% of our full-year forecast and 20.3% of consensus. We deem this in line, as 1Q is seasonally low. 1QFY15 revenue increased 7.2% yoy, driven by the higher condom sales volume. Net profit jumped 26.7% yoy in 1QFY15 due to better product mix, lower latex cost and favourable forex rates. We keep our FY15-17 EPS forecasts but raise our target price as we roll over our valuation from CY15 to 19x CY16 P/E (unchanged 20% premium to the previous rubber glove sector average). We maintain our Add rating on Karex, with strong demand and potential earnings upside from the acquisition of GP as re-rating catalysts. No dividend was declared, in line with our expectations.
Stronger results yoy
Karex’s 1QFY15 revenue rose by 7.2% yoy, while core net profit increased by 26.7%. The stronger topline was mainly due to the higher sales volume that offset the decline in average selling price (ASP) resulting from the higher number of orders from the tender market (49% of total revenue in 1QFY15 vs. 48% in 1QFY14). The margins for tender orders are the same as the commercial orders but selling prices are lower. Karex’s manufacturing capacity increased from 3.5bn in FY14 to 4bn in 1QFY15. However, utilisation was fairly flat yoy, at 76.3% in 1QFY15 versus 77% in 1QFY14, indicating that demand continued to be strong. YTD, condom sales increased 11.9% yoy, while catheter sales rose 6.5% yoy. Probe cover and lubricating jelly revenue plunged 63% yoy, negatively affected by the lower lubricating jelly sales due to the lower sales contribution from commercial customers. In terms of region, African sales accounted for 47.1% of total sales in 1QFY15, rising from 37% in 1QFY14, due to the strong orders from the tender market. This was followed by Asian sales (29.6%), American sales (13.4%, which moderated from 20% yoy in 1QFY14 as Karex focused on tender orders during the quarter) and European sales (10%). 1QFY15 operating margin rose 3.1% pts yoy due to lower latex price, favourable US$/RM rate and increase in sales of higher-margin products.
Qoq earnings growth slowed due to higher effective tax rate
1QFY15 revenue increased 11.1% qoq due to the higher condom sales volume. 1QFY15 EBIT margin increased 1.2% pts qoq due to favourable product mix, exchange rate and raw material prices but net profit rose at a slower 5.2% qoq due to the higher effective tax rate of 21.6% in 1QFY15 (10.3% in 1QFY14).
Source: CIMB Daybreak - 01 December 2014
Target RM4.08 (Stock Rating: ADD)
Karex’s 1QFY6/15 net profit was in line with expectations, at 20% of our full-year forecast and 20.3% of consensus. We deem this in line, as 1Q is seasonally low. 1QFY15 revenue increased 7.2% yoy, driven by the higher condom sales volume. Net profit jumped 26.7% yoy in 1QFY15 due to better product mix, lower latex cost and favourable forex rates. We keep our FY15-17 EPS forecasts but raise our target price as we roll over our valuation from CY15 to 19x CY16 P/E (unchanged 20% premium to the previous rubber glove sector average). We maintain our Add rating on Karex, with strong demand and potential earnings upside from the acquisition of GP as re-rating catalysts. No dividend was declared, in line with our expectations.
Stronger results yoy
Karex’s 1QFY15 revenue rose by 7.2% yoy, while core net profit increased by 26.7%. The stronger topline was mainly due to the higher sales volume that offset the decline in average selling price (ASP) resulting from the higher number of orders from the tender market (49% of total revenue in 1QFY15 vs. 48% in 1QFY14). The margins for tender orders are the same as the commercial orders but selling prices are lower. Karex’s manufacturing capacity increased from 3.5bn in FY14 to 4bn in 1QFY15. However, utilisation was fairly flat yoy, at 76.3% in 1QFY15 versus 77% in 1QFY14, indicating that demand continued to be strong. YTD, condom sales increased 11.9% yoy, while catheter sales rose 6.5% yoy. Probe cover and lubricating jelly revenue plunged 63% yoy, negatively affected by the lower lubricating jelly sales due to the lower sales contribution from commercial customers. In terms of region, African sales accounted for 47.1% of total sales in 1QFY15, rising from 37% in 1QFY14, due to the strong orders from the tender market. This was followed by Asian sales (29.6%), American sales (13.4%, which moderated from 20% yoy in 1QFY14 as Karex focused on tender orders during the quarter) and European sales (10%). 1QFY15 operating margin rose 3.1% pts yoy due to lower latex price, favourable US$/RM rate and increase in sales of higher-margin products.
Qoq earnings growth slowed due to higher effective tax rate
1QFY15 revenue increased 11.1% qoq due to the higher condom sales volume. 1QFY15 EBIT margin increased 1.2% pts qoq due to favourable product mix, exchange rate and raw material prices but net profit rose at a slower 5.2% qoq due to the higher effective tax rate of 21.6% in 1QFY15 (10.3% in 1QFY14).
Source: CIMB Daybreak - 01 December 2014
