• Small but beautiful. A niche player in the natural and synthetic specialty examination gloves segment , which come in different lengths, colours, thickness, and number of pieces per box, depending on customer needs. This cushions the company from tighter competition among big-volume glove players, as it offers flexibility in the customisation of orders and command a competitive edge and potentially higher margins.

• To-date, Comfort has a wide range of product offering including surgical, clean-room and household gloves, with over 300 types of product offered. The group has two manufacturing facilities located in Matang and Simpang, Perak, consisting of 40 production lines and is expected to ramp-up its capacity to 48 lines by FY18, churning close to 5.0 bn pieces of gloves annually upon full commissioning. Meanwhile, future plans include establishing manufacturing facilities in Indonesia, Thailand and Vietnam.

• Positive outlook with 20% FY17-20 EPS CAGR. Growing demand from the industrial, healthcare, and food industries could drive revenue growth moving forward. Also, sustained capacity expansion and upgrades coupled with rising operational efficiency bode well for comfort to cater to rising demand.

• Undemanding valuation. Comfort is trading at 14.5x FY19 PE (14.2x ex cash) , which is about 40% lower against its peers. Consensus TP is RM1.45, pegging a 20.1x FY19 P/E.

• Poised for a downtrend line breakout. In wake of ongoing market consolidation, Comfort’s prices tumbled 18.9% from 52-wk high of RM1.22 (5 Jan) to a low of RM0.99 (6 Feb) before closing at RM1.05 yesterday. We see limited downside risks and potential downtrend reversal due to its earnings resilience and undemanding valuations, coupled with the formation of two small hammer candlesticks.

• A successful breakout above RM1.10 (downtrend channel or 38.2% FR) will spur prices higher towards RM1.15 (23.6% FR) before reaching our LT target at RM1.22. Conversely, key supports are situated near RM1.00 psychological levels (200d SMA) and RM0.99. Failure to hold near RM0.99 may weaken share prices lower towards RM0.92 (6 Dec) zones. Cut loss at RM0.985.

Source: Hong Leong Investment Bank Research - 27 Mar 2018