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KUALA LUMPUR (Nov 13): CGS-CIMB Securities Sdn Bhd said today that it upgraded condom maker Karex Bhd stock to “add” from “hold” with an unchanged price target (TP) of RM1.10 after Karex announced yesterday the group’s acquisition proposal. of the remaining 30% stake in the 70% owned subsidiary Global Protection Corp (GP) for RM42.26 million.
In a note today, CGS-CIMB analyst Walter Aw said the research firm views the acquisition positively given its cumulative earnings nature.
“We view this positively given the cumulative nature of earnings from the proposed acquisition and the operational synergies for their (Karex) business,” Aw said.
Yesterday, Karex said that the acquisition by its wholly-owned subsidiary Karex Global Ltd (KG) will be fully funded by issuing up to 82.93 million new Karex shares at an issue price to be determined later. .
Today, Aw said that while the deal will broaden Karex’s share base, CGS-CIMB estimates that it will still raise Karex’s earnings per share by 1.9% to 4.7% in the financial years ending 30 December. June 2021 (FY21) to FY23.
“This assuming GP’s net profit for fiscal year 21-23F would remain stable at RM10.7 million (30% share: RM3.2 million), which is conservative, given its two-year income / CAGR net profit. (compound annual growth rate) (FY18-20) of 10.8% / 915%.
“This agreement is also operationally synergistic, as GP will become Karex’s wholly owned subsidiary, allowing it to fully capture GP’s growing profitability, leveraging the latter’s established private label brands and extensive distribution channels.
“As the price of the share [of Karex] has corrected 27.5% since our last report (August 25), our improvement is supported by: i) its strong earnings outlook (three-year EPS CAGR of 131.1%) driven by more favorable supply and demand dynamics; ii) its own established brands in the condom market; and iii) its position as the world’s largest condom manufacturer (in terms of production capacity), ”said Aw.
Meanwhile, Hong Leong Investment Bank Bhd (HLIB) analyst Farah Diyana Kamaludin wrote in a note today that HLIB expects the 100% ownership of Karex GP to contribute positively to Karex’s earnings.
“While the acquisition would help plug the MI (minority interest) leak, we estimate that [Karex’s] FY21-22 EPS would be diluted 3% and 2% after the share issue.
“We keep our [Karex earnings] forecasts pending completion of the acquisition. We hold ‘buy’, with TP unchanged from RM1.20 [for Karex shares]”Farah Diyana said.
In Bursa Malaysia today, Karex’s share price rose 7.5 sen or 9.62% during the 12:30 p.m. break. M. At 85.5 sen, which values the company at about RM 855 million.
The stock saw around 20 million shares traded.
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