not vested
Karex faces more challenges aheadCondom manufacturer Karex Bhd, which reported plunging profits in recent quarters, still sees headwinds ahead but remains unfazed, stating that its business is a long-term venture.
CEO Goh Miah Kiat, a fourth-generation head honcho, says that potential investors should bear that in mind when wanting to invest in the company.
“Invest in us but for the long term, we are definitely looking at growth, that’s why we did the IPO in the first place,” Goh says candidly.
Karex, which has the capacity to produce over
five billion pieces of condoms annually, therefore making it the world’s largest condom company, went public back in 2013.
It quickly became a favourite with investors and the firm returned the favour by rewarding shareholders with handsome returns.
Today however, the company’s stock is trading below its IPO price and in its most recent quarter ended Dec 31, 2018, its net profit stood at RM1.4mil, compared with a net profit of RM3.2mil for the same period a year earlier.
In the earlier years, its quarterly profits used to be in double-digits.
“In the last two years, things have changed, global funding for condoms for one, has been cut,” Goh says.
He also blames
high raw material costs that have not been able to be passed on quickly enough, and increased expenses to develop its own brand of products, for the declines in profits.
“While we think that there is definitely still a certain level of headwinds ahead especially in terms of costs, we think Karex is in the right position to continue to lead the industry, ” Goh, whose family controls over 50% of the company, adds.
Karex’s closest competitor is a Chinese conglomerate which produces just
half of its five billion pieces per annum.“While it is relatively easy to make condoms, the
industry’s barriers to entry are high. Anyone can buy a factory and machines, put in some latex and dip some products out.
“But the question is who will buy from you, it’s a question of trust as it is a medical device, and market access is tough,” he elaborates.
Goh also says it is “very difficult’ to sell plain vanilla condoms these days as today, all condoms have to have a certain feature to be able to be sold.
“It has become more and more difficult for players to come into the market.
Goh says he doesn’t regret ramping up expenses of late to make and market its own brand of condoms as these command
a higher gross margin - of 40% - compared with those that it manufactures for other companies as well as for governments worldwide.
“We spend to build our own brand products but we do believe that’s the right thing to do. When we got into UK, that was the day Brexit happened, but no regrets, I think at the end of the day, we are very long-term in our growth perspective,” he adds of the firm’s recent expansion plans.
Karex, which has been raising prices of its condoms which are sold in over 140 countries over the past one year or so in order to mitigate rising costs, will probably continue to do so this year, Goh says.
“We are raising prices and that’s just fair but you cannot constantly raise prices, we are changing our product mix also.
“Today we are more into commercial customers that gives us the opportunity to introduce higher margin products which have more features.”
Goh stops short of saying whether earnings will improve this year but says there will be a focus on
automation at all of its four factories located in Malaysia and Thailand, as part of its strategy to curb labour costs.
“We know one thing for sure that
labour cost is going to increase from RM1,000 to RM1,500, it’s already gone to RM1,100 last year.
He says the manufacturer has about 3,000 employees on its operations front, and along the way,
“our reliance of foreign workers will continue to drop.”Over the next three years, it wants to
reduce its workforce by 50% and create higher-value work.
Interestingly though,
packaging and not labour or rubber for that matter, is the largest cost component for its condoms, Goh reveals.
“
Rubber is only about 20% of total cost, packaging got affected a lot last year because of rising oil prices.”
Source: The Star
https://www.thestar.com.my/business/bus ... qhEC1UB.99
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