Stand aside, Twitter: World's largest condom maker pops on debut

Leslie Shaffer | Writer for
Karex Industries condom factory in Pontian Besar, Johor, Malaysia.
Goh Seng Chong | Bloomberg | Getty Images

When it comes to IPOs, sex may sell better than the internet, with shares of the world's largest condom maker popping more than 30 percent on their debut, while Twitter's offering faces an uncertain reception.

Karex, which has around 10 percent of the global condom market, saw its shares surge as high as 2.50 Malaysian ringgit, or around $0.79, on its Malaysian debut, up from its 1.85 ringgit offering price. The stock closed at 2.45 ringgit.

Meanwhile,Twitter's trading debut, set for Thursday, is facing some skepticism among analysts who are worried it may suffer the same fate as social media peer Facebook's ill-starred IPO last year. That IPO not only failed to pop on its first day, but proceeded to lose more than half its value over the next four months.

An AP-CNBC poll showed nearly half of active investors felt twitter's IPO wouldn't be a good investment.

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When it comes to the condom industry, Karex is the biggest of the big. The company, which makes Durex and LifeStyles brand condoms under contract, is planning to use its IPO proceeds of around 75 million ringgit ($23.5 million) to double its annual capacity to around six billion pieces by the end of 2015, said Lee Yen Ling, an analyst at Maybank, in a report subtitled "rising to the occasion."

She set a fair value of 2.16 ringgit for the stock, citing "tremendous growth opportunities."

Karex's next largest competitor, Thai Nippon Rubber, can produce around 2 billion pieces a year.

"There is a shortage of condom supply in the market, as reported by the various NGOs and government agencies," Lee said. "The other condom manufacturers are not committed in expanding their capacities," she added, forecasting Karex's market share to rise to 15 percent by 2015.

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Analysts at another bank, RHB, are also positive on the stock, initiating it at "Buy" with a 2.59 ringgit target price, citing Infobusiness Research's forecasts for the global condom market to grow to 30.4 billion pieces a year by 2016, compared with 21.2 billion in 2011.

"We believe that the consumption of condoms will rise in tandem with the growing world population, which is currently increasing by 1 billion people every 12 years and is expected to reach 8.1 billion by 2025," RHB said.

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"Growing health awareness in developing countries of the need for family planning as well as the prevention of the spread of HIV and various sexually transmitted infections (STIs) will also help boost condom demand," it added. "Given that the usage of condoms in China is still growing from a low base, we see huge potential for condom sales growth in the commercial market."

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In addition to its commercial clients and its own brand Carex, the company makes condoms for the institutional market, including the United Nations Population Fund (UNFPA) and United States Agency for International Development (USAID), RHB noted.

Karex's condoms are pre-qualified to meet the industry's stringent standards in 110 countries, offering a key competitive advantage against any Johnny-come-lately competitors who will need to go through the high cost and time of obtaining new accreditation, RHB noted.

—By CNBC's Leslie Shaffer; Follow her on twitter @LeslieShaffer1