KUALA LUMPUR (May 31): Karex Bhd's share price hit a low of RM1.83 this morning at 10.08am — also the lowest since its closing of RM2.25 on May 24 this year — after a research house highlighted an opaque outlook for the condom manufacturer as well as contraction in third quarter earnings.

Prior to this, the stock had been at its lowest two years ago, when it closed at RM1.83 on March 19, 2015.

Karex's net profit in the third quarter ended March 31, 2017 (3QFY17) contracted 28.3% to RM6.9 million from RM9.63 million a year earlier, on higher distribution expenses.

Revenue, meanwhile, rose 4.53% to RM92.22 million from RM88.22 million, thanks to additional sales contributed by the sexual wellness segment.

For the cumulative nine-month period ended March 31, 2017 (9MFY17), revenue grew by 3.4% to RM269.8 million from RM260.9 million. However, its net profit fell 54% to RM25.05 million from RM54.57 million.

AffinHwang Capital, in its research note today, said Karex's 3QFY17 results were particularly affected by the "softness in the tender market", as well as sustained marketing expenses to build its own brand manufacturing (OBM) business.

"We believe a recovery in the tender market is unlikely in the near term due to intensifying pricing competition," AffinHwang Capital said.

The research firm had also maintained its 'hold' rating on Karex, further slashing its target price to RM1.90 from RM2.20 after factoring in its earnings cuts.

"We expect the tender market to stay soft for 2017 on the back of capacity glut, a low industry utilisation rate and spending cuts by NGOs, which are likely to impact Karex's average pricing," it said.

The firm added that while the OBM contribution continues to grow despite from a low base, margins could be pressured due to high customer-acquisition costs.