Comfort Gloves benefitting from increased demand due to Covid-19

RHB Research maintained its buy call on Comfort Gloves with a higher target price (TP) of RM5.70 from its previous RM4.80, a 38% upside with c. 1% yield.

According to the research house, the TP is based on 21F P/E of 18x, a 33% discount against its peers’ average.

“This is to reflect its smaller market cap/liquidity versus peers. Its first half ended 31 Jan 2021 (1HFY21) earnings beat expectations due to better-than-expected average selling price (ASP),” RHB Research analyst Alan Lim said in a Sept 8 note.

“After adjusting for the higher ASP, we increase our earnings forecasts and TP,” he added.

For its second quarter ended July 31, 2020 (2Q20), the group recorded an increased revenue of RM197.9 mil from RM117.6 mil in 2Q19 and a significant increase in earnings of RM42.7 mil versus last year’s RM7.1 mil.

The increase is mainly attributed to the increase in sales volume and much better ASP.

Meanwhile, Comfort Glove’s 1HFY21 net profit of RM59.1 mil makes up 78% of RHB Research’s FY21 full-year earnings estimate, due to the increase in its monthly ASP by 5%-10% consecutively every month since Covid-19 started.

Since customers have locked in volume commitments for the next 18 months, Comfort Gloves intends to expand its capacity by 10% by 4Q21 on top of the 10% expansion in 1Q21.

“We have increased FY21-23F earnings by 63%-103% to reflect higher ASP, which is in line with the industry trend. In the near term, we expect Comfort Gloves to register a stronger set of results in 3Q21,” Lim said.

However, Lim also added that the biggest risk in the call includes faster-than-expected discovery of a safe and effective Covid-19 vaccine’s global availability.

“Our base case scenario is that the ASP should normalise in the long run once a safe and effective vaccine is available globally. Other risks are higher-than expected supply from China, lower-than-expected sales volume and volatile currency movements and raw material prices,” he said.

As of 5.18pm, the share price for Comfort Glove went down 4.76% to RM3.80 with a market capitalisation of RM2.22 bil. – Sept 10, 2020

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