FIGURE 1: KAREX BERHAD LAST
5 YEARS SHARE PRICE TREND
**analysis
based on 2020 annual report.
1. GENERAL
INTRO: Karex’s core business is in manufacturing and selling condoms,
sterile catheters, latex probe covers, lubricating jelly, latex sleeve, rubber
finger gloves, hand gloves, and other rubber products. The company generates
the majority of its revenue from the condoms business.
2.
NOTABLE
POINTS:
a. In FY2020, the Group recorded a revenue of
RM395.1 million, representing an improvement from the previous financial year.
However, profitability was affected due to the short term close down of
manufacturing facilities during the initial period of the COVID-19 pandemic.
The disruption caused by the pandemic also caused an accumulation of
inventories.
b. In terms of corporate development, KAREX
expanded its catheter and lubricant manufacturing capacity at its Thailand
facility in FY2020. Upon the onset of the COVID-19 pandemic, KAREX responded
quickly to the developing crisis and re-tooled several of its lubricant
manufacturing lines to produce hand sanitizers. In addition, it recognizes the
future potential of medical gloves. With the COVID-18 pandemic still ongoing, the
demand for medical gloves is expected to increase considerably in the future.
Hence, KAREX is also venturing into the manufacturing of medical gloves, with
plans to begin construction of its medical glove facility.
c. In addition, KAREX increases automation in its current
manufacturing processes to reduce its dependency on labour and improve its
quality controls. It also incorporated machinery to improve its packing
processes and testing processes. An improved inventory management system also
enabled it to cope with the increasing variety of product variants, packaging
and flavouring in its products catalogue.
3.
IS
THIS COUNTER A STRONG GROWTH STOCK?
a. REVENUE RANGE (RM million): 395 million as
reported in 2020 annual report, this is a medium revenue company.
b. SHARE PRICE: from 2016-2021, share price overall
decreased from ~ RM4.00 in 2016 gradually to the current level of around
RM0.75. A small spike in share price to above RM1.00 in August 2020 coincided with
the onset of the COVID-19 pandemic. This share price trend is similar to most
of other gloves manufacturing counters, which experienced a surge of share
price in tandem with the onset of the COVID-19 pandemic. The share prices have
since reduced but still at a higher level compared to pre-pandemic share prices.
This shows that investors are overall optimistic on the outlook of this counter
and its potential to produce medical gloves in the future.
c. EARNING PER SHARE (EPS): earning per share in
last 5 years was overall worsening, which decreased from 6.65 to 0.02 sen.
d. PRICE TO EARNINGS (P/E) RATIO: current P/E ratio
is at 163.92, which shows that KAREX’s share price is significantly overvalued
compared to its earnings. The overvaluation may have stemmed from investors
being optimistic about KAREX’s future earning potential as a medical gloves
manufacturer.
e.
FUTURE POTENTIAL/PROSPECTS: share price expect
to be stable in the next few years.
f. CAPITAL EXPENDITURE (CAPEX): spending on
purchase of new fixed assets and other investments amount to about RM 23.1
million, which is around 3% of total assets.
4.
IS
THIS A STRONG DIVIDEND STOCK?
a. DIVIDEND YIELD: in 2020 financial year, KAREX declared
a dividend payout of 1 sen per share to its shareholders, this amounts to a
dividend yield of 1.32%.
b.
DIVIDEND PAYOUT RATIO: N/A
c. CONSISTENCY: This counter’s dividend payout has
been very consistent (dividend paid to shareholders in 5 out of 5 years), the dividend
paid to shareholders in the last five years ranged from 0.5 to 2 sen per share.
5.
IS
THE MANAGEMENT PERFORMANCE GOOD?
a. RETURN ON EQUITY (ROE): in 2020 financial year, KAREX
reported a poor return of shareholders’ equity, at only 0.72%. In the last 5
years, its ROE decreased steadily from 13.92% to current level of 0.72%.
b.
COST-TO-INCOME RATIO: the cost-to-income ratio
is 7510%, which is very high.
c. DEBT-TO-EQUITY (GEARING) RATIO: Its gearing
ratio is at 28%, whereby its debt level is less than its equity, resulting in a
healthy balance sheet.
d.
CASH FLOW: cash flow is positive, at around RM 45
million, equivalent to RM 0.04 per share.
6.
OTHER
INDICATORS:
a. SUPPORT BY INSTITUTIONAL INVESTORS: this counter
is not well supported by institutional investors, there are only 4 institutional
investors at top 30 major shareholders list, not including investment funds and
insurance funds. Its major shareholders are Karex One Limited (18.38%), Goh Yin
(7.83%) and Goh Yen Yen (7.19%).
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