KUALA LUMPUR (Sept 8): RHB Research Institute has maintained its "buy" call for glove maker Comfort Gloves Bhd with a higher target price (TP) of RM5.70, from RM4.80 previously, as the firm's earnings for the first half ended July 31, 2020 (1HFY21) beat expectations due to better-than-expected average selling prices (ASPs).
“Comfort Gloves' 1HFY21 net profit of RM59.1 million was above expectations, making up 78% of our FY21 full-year earnings estimate. A comparison against the consensus is not available due to lack of coverage of the stock.
“The positive deviation is due to better-than-expected ASPs. From the company website, we gather that Comfort Gloves has increased its monthly ASP by 5%-10% consecutively every month since Covid-19 started,” RHB Research Institute analyst Alan Lim wrote in a note today.
On prospects, while customers have locked in volume commitments for the next 18 months, RHB however believes that the ASPs will only be decided one to two months before delivery as per industry norms.
Lim noted that Comfort Gloves intends to expand its capacity by the fourth quarter ending Jan 31, 2021 (4QFY21) on top of the 10% expansion in 2QFY21.
“We have increased [our] FY21F-23F earnings (forecasts) by 63%-103% to reflect the higher ASPs. This is in line with the industry trend. The higher TP is in line with better earnings estimates.
“In the near term, we expect Comfort Gloves to register a stronger set of results for 3QFY21, in line with the higher ASP trend in the industry. In the long run, the company is a beneficiary of the long-term uptrend of glove consumption globally,” Lim added.
Lim highlighted a few risks to his "buy" call, including a faster-than-expected discovery of a safe and effective Covid-19 vaccine available globally.
“Our base-case scenario is that ASPs 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 or raw material prices.
“Our ASP assumptions of US$31.70 (RM132.08)-US$33.40 per box of 1,000 pieces of gloves for FY21F-FY23F are already at discounts of 33%-73% versus current market prices of gloves of US$50-US$90 per box to impute the risk of a vaccine causing a decline in glove ASPs,” he said.
At the time of writing today, shares in Comfort Gloves were 14 sen or 3.39% lower at RM3.99, bringing down its market value to RM2.33 billion. It saw some 11.54 million shares change hands.