Karex Industries Sdn Bhd, the world’s largest condom maker by production capacity, is turning the next page of its success story by transforming itself from an original equipment manufacturer (OEM) to the owner of itsownCarexbrand.
Although the Malaysian company has been world’s largest condom maker since 2011 when its capacity was 3 billion condoms per year, the distinction means little if consumers globally do not know its brand, say its executives.
The company has embraced the challenge. Instead of just enjoying industry recognition as the world’s largest condom maker, Karex is challenging itself by moving to build brand awareness in the world market.
CEO Goh Miah Kiat, a third-generation member of the family that founded the business in 1988, says his job is to bring the company to a higher level.
As part of that process, he brought Karex to list on Bursa Malaysia in November last year. The company sold 67.5 million shares in its initial public offering (IPO), representing 25% of its capital, at 1.85 ringgit a share. The IPO was oversubscribed by 22.76 times.
Mr Goh believes the higher profile in the capital market will help his company gain wider recognition among consumers, paving the way for brand awareness building.
“Those who know us currently are investment companies and the media. People on the street do not know us,” he said.
“We do not want to grow only in terms of capacity. If we want to expand capacity we can go to any bank and ask for loans. We went public because we want to build our brand.”
In 2012, there were 22.8 billion condoms used globally, of which 52% were in the commercial market and 48% by institutional buyers responsible for HIV prevention and family planning. Karex enjoys around a 10% share of the market in terms of production capacity. Among the top 10 condom makers, Karex’s capacity accounts for approximately 25%.
However, share of its own Carex brand is less than 1% of the global market.
The company last year completed a capacity expansion to 4 billion pieces, with a further increase to 5 billion planned this year 6 billion in 2015. The second largest condom maker, TTK-LIG Ltd in India, has a capacity of between 1.5 billion and 2 billion.
Mr Goh added that revenue contributed from its brand was about 4% of the company’s total. The largest portion, 60%, comes from producing for other brands such as Durex, Ansell Lifestyle, Trustex and One. The rest is from the sale to the governments and international organisations.
“We do not want to grow only in terms of capacity. If we want to expand capacity we can go to any bank and ask for loans. We went public because we want to build our brand”
GOH MIAH KIAT CEO,
Karex Industries
He did not specify the revenue target he was seeking for the brand, but said the outlook for condom makers was good because people nowadays are more cautious about prevention before having sex.
“Around 2.7 million people are newly infected with HIV [each year] and around 5,000 people [a day] are dying from HIV. I believe that the Gen X and Gen Y people realise this and they will have more prevention,” he said.
Karex forecasts global demand for condoms to grow at a 7.5% compounded annual growth rate (CAGR) and reach 30.4 billion pieces in 2016.
The company generated revenue of 65.4 million ringgit in the first quarter (July-September) of its 2014 fiscal year, up 18.7% from the same period last year. Its net profit skyrocketed by 84.1% from a year earlier to 10.1 million ringgit thanks to production efficiency.
Karex’s revenue in the 2013 fiscal year to June 30 was 231.4 million ringgit compared with 188.8 million in 2012, and net profit rose to 59.9 million ringgit from 32.9 million. On a year-on-year basis, the revenue increase was mainly driven by increased sales volumes.
RHB said in an analysis that organisations such as the United Nations Population Fund (UNFPA) and United States Agency for Development (USAID) have started programmes to distribute condoms free or at subsidised cost. This would likely benefit Karex as UNFPA and USAID are established customers.
Karex has total production capacity from 42 lines in three manufacturing facilities: two in Malaysia — Pontian in Johor and Port Klang in Selangor, and Hat Yai in Thailand. By 2015, the targeted capacity of 6 billion will come from Pontian, 1.2 billion from Hat Yai and 800 million from Port Klang.