Geared Up To Meet Higher Demand

Prospects

• Comfort Gloves Bhd’s (CGB) earnings is on-track for recovery in FY20; backed by resilient demand, ongoing capacity expansion and improved margins following lower logistic costs and improved operational efficiency.

• Even so, we are ceasing coverage on Comfort Gloves due to reallocation of internal resources. Our last recommendation was a BUY.

• Moving forward, we expect operational cash flow to remain healthy, while net profit and revenue is estimated to grow at a five-year CAGR of 9.7% and 18.5% respectively, underpinned by stronger sales volumes and capacity expansion. Debt levels are expected to be manageable; around net gearing of 0.24 – 0.26 times in the near-term as the group continues on its expansion strategy.

• Meanwhile, glove makers like CGB have reportedly seen a surge in demand for medical examination gloves following the coronavirus outbreak in China. The World Health Organisation (WHO) has also officially declared the virus as a global health emergency amid rising infection cases and death toll globally.

• Our last assigned target price was RM1.10, by ascribing to a higher target PER of 20.0x (from 17.0x) to CGB’s unchanged FY20 EPS of 5.6 sen. The increased target PER is in-line with the recent increase in peers’ valuation following expectations of increased demand for gloves worldwide.

Source: Mplus Research - 6 Feb 2020