• Company profile. Comfort Gloves Berhad (CGB), formerly known as Integrated Rubber Corporation Berhad offers wide range of quality gloves, which are exported to the Northern American, Oceanic Countries, Middle East Countries, Europe, South America, Africa and Asia-Pacific region. CGB produces Nitrile and Latex gloves and offers Powdered and powder free examination gloves in different length and color for different application.

• Fire outbreak, but recovered with a stronger footing. In March 2016, CGB suffered a total loss of RM12.8m on the back of the fire outbreak on the new constructed warehouse, but was able to recover RM12.1m through insurance claims. With the compensation, CGB has installed 8 additional production lines, which were fully completed and operated in July 2016 with productivity raised by 20%-25%. Besides, the Group is planning to install additional 8 production lines in FY18 to total production lines of 48, which will boost their capacity by at least 20%.

• Increasing revenue amid stronger demand for specialty gloves. The latest quarterly results has shown an increase of 24% yoy in revenue to RM72.7m in 4Q17 (vs. RM58.6m in 4Q16), suggesting that the installation of new lines are bringing positive results towards the Group. Also, the adoption of energy efficiency projects has brought great savings in consumption of natural gas and water by 17% and 20% respectively, further strengthening the competitiveness position of CGB.

• Potential upward revision of ASP, contributing to higher margins. There was a mild drop of 2% in GP margins mainly due to an increase in raw material price, where CGB was unable to transfer the additional cost to customers for orders committed in the previous months. We opine that the management would be able to pass on the cost in the upcoming results with a potential revision in ASP, eventually showing normalisation in GP margins.
   
• Technical outlook. CGB has trended sideways within a symmetrical triangle formation over the past year, while volumes have seen signs of rising two weeks back. With the MACD Line trending above the zero level and MACD Histogram turned green, we expect trading interest would be able to support a pick up in share price to above the RM0.735 level, targeting RM0.77-0.81 levels, followed by RM0.94 (symmetrical triangle breakout target). Support will be pegged around RM0.69-0.705. Cut loss will be set at RM0.675.

Source: Hong Leong Investment Bank Research - 23 May 2017