• Maintain NEUTRAL and TP of MYR3.18, with 9% expected total return. 1QFY21 earnings met expectations. Near term sentiment may be affected by news of the US Food and Drug Administration’s (FDA) import alert. However, share price downside is limited due to strong earnings prospects. Our TP is based on 25x 2021F P/E – 30% discount vs peer average. This is to reflect its smaller market cap and liquidity to peers.
   
• Earnings met expectations. Comfort Glove’s 1QFY21 (Jan) net profit of MYR16.3m, accounted for 38% of our FY21F. We deemed it as in line – we expect higher logistics cost from 2QFY21F. A comparison against consensus is not available due to a lack of coverage on the stock. The company announced an interim DPS of 1.5 sen (ex-date: 5 Aug).
   
• 1QFY21 net profit rose was MYR16.3m (60% QoQ, 94% YoY). 1QFY21 revenue grew to MYR152.9m (10% QoQ, 27% YoY) due to an increase in sales volume. The quarterly increase in revenue was mainly contributed from the strengthening of the USD against the MYR. Overall, the higher revenue was thanks to lower production cost contributed from the increase in productivity of existing and new production lines.

• Lower net gearing. As at end-1QFY21, net gearing declined to 0.08x. This is an improvement as compared to 4QFY20’s 0.16x due to a higher cash pile and larger equity base.

• Prospects. The company expects higher gloves consumption in the long run due to rising global health awareness in view of COVID-19. It also acknowledged gloves shortage in the global market.

• Maintain NEUTRAL with TP of MYR3.18. FY20F-22F earnings are unchanged. Although we expect the company to register higher earnings in FY21F, its near-term earnings may be weaker QoQ due to higher logistics cost incurred.

• Risks. Downside/upside risks to our call are higher-/lower-than-expected increase in raw material prices, as well as heightened/easing competition among rubber glove players.

Source: RHB Securities Research - 15 Jun 2020