Comfort carves its own niche, supplies premium specialty gloves

  • Business
  • Monday, 25 Dec 2017

Bigger shipment: Total export value of rubber gloves from Malaysia is due to grow by RM3bil to RM16.2bil, despite rising raw material, natural gas and labour costs.

PETALING JAYA: In the local arena of large rubber glove makers, COMFORT GLOVES BHD is a relatively overlooked player.

As of Friday’s close, Comfort’s share price hit an all-time high of RM1.14.

The Taiping-based glove manufacturing company recently announced its financial results for the third quarter ended Oct 31, 2017, which saw net profit surge 43.6% and 75.9% in the third quarter and nine-month period, respectively, as compared to the previous corresponding periods.

In a filing with Bursa Malaysia, Comfort said the improved financial performance was mainly due to continuous projects on cost savings and upgrading of production lines to mitigate the impact of increased labour and energy costs.

In addition, the group had a higher net profit margin of 11% in the third quarter, which was attributed to aggressive cost-saving projects and improved production efficiency.

“Prospects for the rubber glove manufacturing sector remain strong, with increasing demand arising from switching trends towards nitrile glove.

“Nitrile glove now accounts for 61% of Malaysian rubber glove export.

“As overall demand for nitrile gloves increases, the market is seeing a rise in segmentation and differentiation, leading to higher demand for specialty gloves,” said Comfort.

It added that it is confident of capturing greater market share and strengthening margins through its dedication to process rationalisation and improvement in operational agility.

Comfort’s revenue and net profit for the nine-month period of the financial year ending Jan 31, 2018 (FY18) surpassed RHB Research’s full year estimates.

The research house has maintained its “buy” call, with a target price of RM1.46.

“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,” said RHB Research.

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

RHB Research anticipates the eight new production lines to commence operations in FY19, as most existing lines are already running at close to full capacity.

Following the addition of new production lines, Comfort’s production capacity in FY19 is estimated to grow by 20%, bringing the group’s annual glove production to an estimated 4.8 billion pieces.

“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 to FY20 forward earnings by 11% to 14%, after assuming higher sales from stronger production volumes and better selling prices,” RHB Research said.

In FY17, revenue contribution from the United States and Canada amounted to RM111.81mil, making up 42.5% of the group’s total revenue. This was followed by the Asian region, excluding Malaysia, which made up 30.8% of Comfort’s revenue in the previous financial year.

As at Oct 31, 2017, the group has cash and cash equivalents amounting to RM24.12mil and borrowings of RM7.52mil.

Comfort currently trades at a price-earnings multiple of 16.22 times as compared to its peers Top Glove Corp Bhd at 27.15 times, Hartalega Holdings Bhd at 48.36 times and Kossan Rubber Industries Bhd at 29.1 times.

In a recent coverage initiation report by Malacca Securities, the research house said Comfort did not aim to compete with the giant players but rather differentiate itself by specialising in the supply of premium specialty gloves.

“By catering to personalised orders from its customers, Comfort has created a niche clientele base for itself.

“We think this will serve it well, considering the highly saturated rubber gloves industry.

“Comfort is able to cater to bespoke orders from customers, providing a competitive edge and potentially higher margins, compared to other larger glove players by leveraging on its smaller and leaner structure,” said Malacca Securities.

Earlier this month, Malaysian Rubber Glove Manufacturers Association president Denis Low said he expected a record year for glove manufacturers, in line with strong global demand for medical and surgical gloves, as well as all manufacturers running at optimum capacities and an oversold position.

In October, Low guided that the total export value of rubber gloves from Malaysia is due to grow by RM3bil to RM16.2bil, despite rising raw material, natural gas and labour costs.

Furthermore, with China shutting down vinyl glove factories as a move to counter polluting industries, export growth of rubber gloves from Malaysia could be sustained or further improved.

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