KAREX: Time for a Party?

Result Update

For QE30/9/2020, Karex's net profit rose 213% q-o-q to RM4.5 million on the back of a 12%-increase in revenue to RM101.7 million. Compared to the same quarter last year, bottom line has turnaround from a loss of RM167k and revenue was higher by 6%.

Higher revenue was driven by condom sales from the Sexual Wellness segment and record-high contribution from the Medical segment during the quarter. In particular, condom sales to the Americas region in particular continued to expand and contributed positively to the profitability during the current quarter. A favourable sales mix during the quarter coupled with improved cost control initiatives such as incorporation of automation led to better operating efficiency resulting in a profit before tax of RM 7.0 million for the quarter. 


Table: Karex' last 8 quarters' P&L


Graph: Karex' last 28 quarters' P&L

Financial Position

Karex's financial position as at 30/9/2020 is deemed very healthy. Its current ratio stood at 2.3 X while total liabilities to equity stood at only 0.3 X.

Valuation

Karex (closed at RM0.845 yesterday) is now trading at a PER of 176x (based on last 4 quarters' EPS of 0.48 sen). Based on the high PER, Karex is deemed unattractive. However, if the earnings recovery continues, the valuation will be less demanding in the future.

Technical Outlook

Karex appears to have broken above the 2-year base of RM0.30-0.60.

Chart: Karex's weekly chart as at November 24, 2020 (Source: Malaysiastock.biz)

Conclusion

Based on improved financial performance, healthy financial position, and mildly positive technical outlook, Karex may be a good stock for a recovery play. However, the valuation is very demanding and a big rally will only spring up if earnings improved substantially.

Note: 

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.