COMFORT GLOVES BHD

By RHB Research Buy (maintained) Target price: RM1.46

COMFORT Gloves Bhd’s financial results for the first nine months of financial year 2018 (9M18) have beaten expectations, accounting for 91% of RHB Research’s full-year estimates.

This was primarily as a result of higher-than-expected sales volume and better-than-expected improvement in margins, on the back of improved production efficiency and continuous cost savings.

Comfort Gloves’ revenue also surpassed the research house’s expectations, making up 96% of its full-year forecast.

According to RHB Research, the rubber glove maker is marching into another record-breaking year, given the stronger-than-expected demand.

“We remain positive on the group’s earnings, driven by expectations of growing demand for disposable gloves from the industrial, healthcare and food industries, ongoing capacity improvement that is expected to lead to higher production efficiency, and new additions to capacity.

“Given that most of the lines are running at close to full capacity and that the group saw higher-than-expected increase in demand, we raise our FY18-20 earnings forecast by 11% to 14% after assuming higher sales from stronger production volumes and higher selling prices,” said the research house in a note.

Comfort Gloves is currently undergoing capacity expansion, with eight new production lines expected to come onstream in FY19.

As at the third quarter of FY18, the company’s capital expenditure of RM36mil has been earmarked for the construction of a warehouse and a production plant, comprising eight production lines.

Currently, most of the existing lines are running at close to full capacity.

RHB Research maintained its ”buy” recommendation on the glovemaker, but raised the traget price to RM1.46 from RM1.28.

“We opine that this valuation is justified in view of Comfort Glove’s specialisation in premium specialty gloves, ongoing capacity expansion for business growth, sturdy balance sheet and its well-experienced management team,” it said.