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KUALA LUMPUR (September 8): RHB Research Institute has maintained its “buy-in” call for glove maker Comfort Gloves Bhd with a higher price target (TP) of RM5.70, from RM4.80 previously, as earnings of The company for the first half ended July 31, 2020 (1SFY21) exceeded expectations due to better than expected average sales prices (ASP).
“Comfort Gloves 1SFY21 net profit of RM59.1 million was above expectations, representing 78% of our profit estimate for fiscal year 21. No comparison to consensus is available due to the lack of stock coverage.
“The positive deviation is due to better-than-expected ASPs. From the company’s website, we deduce that Comfort Gloves has increased its monthly ASP between 5% and 10% consecutively every month since Covid-19 started, ”wrote Alan Lim, an analyst at the RHB Research Institute, in a note today .
As for prospects, while customers have secured volume commitments for the next 18 months, RHB believes ASPs will only be decided a month or two before delivery based on industry standards.
Lim noted that Comfort Gloves intends to expand its capacity for the fourth quarter ending January 31, 2021 (4QFY21) in addition to the 10% expansion in 2QFY21.
“We have increased [our] Fiscal year 21F-23F earnings (forecasts) by 63% -103% to reflect higher ASPs. This is in line with the industry trend. The highest TP is in line with best earnings estimates.
“In the near term, we expect Comfort Gloves to post a stronger set of results for 3QFY21, in line with the highest ASP trend in the industry. In the long term, the company will benefit from the long-term upward trend in glove consumption globally, ”Lim added.
Lim highlighted some risks in his “buy” call, including a faster-than-expected discovery of a safe and effective Covid-19 vaccine available globally.
“Our baseline scenario is that ASPs should normalize in the long term 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 commodity prices.
“Our ASP assumptions of US $ 31.70 (RM132.08) -US $ 33.40 per box of 1,000 pieces of gloves for FY21F-FY23F already have discounts of 33% -73% compared to current market prices. of gloves of US $ 50- US $ 90 per box to impute the risk that a vaccine causes a decrease in the ASPs of the gloves, ”he said.
At the time of writing, Comfort Gloves’ shares were 14 sen or 3.39% lower at RM3.99, reducing their market value to RM2.33 billion. He saw some 11.54 million shares change hands.
Read also:
Comfort Gloves’ second quarter net profit increased sixfold from higher prices and sales
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