KUALA LUMPUR (Oct 6): Karex Bhd's share price has fallen to its lowest level since April 23, 2020 after recently reporting lower-than-expected financial results.

The condom maker which opened at 42 sen on Wednesday stayed at around that level thereafter. Since the start of the year, the stock has fallen 44.81%.

The counter saw 212,500 shares change hands as at 3.34pm.

On Sept 29, Karex reported its first full-year net loss on record, blaming it on unavoidable operational expenses arising from the lockdown and higher distribution expenses.

The world's largest condom maker posted a net loss of RM1.02 million for the financial year ended June 30, 2021 (FY21), compared with a net profit of RM228,000 for FY20.

Revenue was up 6.26% to RM419.82 million from RM395.07 million, primarily due to stronger condom sales in markets in the Americas and Asia.

For 4QFY21, Karex registered a net loss of RM5.1 million against a net profit of RM1.43 million in the same quarter last year.

This was despite a 17.16% rise in quarterly revenue to RM106.72 million, from RM91.09 million in 3QFY21, driven by higher sales contributions from the sexual wellness and medical segments.

On a quarter-on-quarter basis, Karex posted a bigger loss compared with RM3.17 million in the preceding quarter, but revenue expanded 11.63% from RM95.61 million, due to the delivery of several tender orders that were previously delayed by the global logistics disruptions.

Following the earnings miss, CGS-CIMB analyst Walter Aw in a note dated Sept 30 trimmed Karex's FY22-23F earnings per share by 58.1-66.3% on lower condom sales, delays in glove expansion plans and lower glove selling prices.

Aw, who lowered the target price on Karex to 47 sen from 77 sen previously, also downgraded his call on the stock to "hold" from "add" as he believed current valuations (near five-year mean) had priced in better earnings prospects.

"We expect near-term earnings to be weak. Given this and the impact of movement control restrictions in 1QFY22 leading to lower production volume in the quarter, we see short-term headwinds.

"(These include,) increase in raw material prices (natural latex, chemicals), higher operating costs (such as Covid-19-related spending and increase in shipping costs), and weak global tender volume (due to cuts in government and non-government organisations' budgets as more funds are channelled to combat Covid-19)," he said.

Aw also noted that Karex expects its new glove production facility (500 million pieces per annum) in Thailand to commence operations in 4QFY22.

"Note that this is a six-month delay from our estimate (we had assumed 2HFY22). Karex targets to ride its existing customer base to market its glove products, which includes large scale retailers and medical customers. Our current average selling price forecasts (per 1,000 pieces) for FY22-24F stand at US$32/US$30/US$29," he added.

Hong Leong Investment Bank Research analyst Sophie Chua Siu Li, in a note dated Sept 30, said Karex's management expects to see a gradual recovery in the company's financial performance as vaccination rate continues to climb globally and with more nations slowly returning to normalcy.

"However, we are of the view that the high freight charges will continue to weigh down on the group's near-term profitability. Commencement of its glove production in Hatyai, Thailand has also been delayed, with trial run expected to begin in end-CY21, given the delay in production line installation.

"We (also) cease coverage on Karex due to the lack of interest from institutional investors, as well as a lack of earnings clarity. Our previous 'hold' rating and TP of 58 sen (pegged to PB multiple of 1.2x, at -0.75SD below five-year average) on Karex should no longer be used as a reference point forward," she added.

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Karex posts first full-year net loss due to lockdown-related and distribution expenses