PETALING JAYA: The prospects for Comfort Gloves Bhd are positive, supported by growing demand for gloves, particularly from developing countries, according to RHB Research.
The brokerage argued that gloves would remain a necessity for various applications post-Ctionovid-19 pandemic.
“We estimate a post-pandemic demand growth of 8%-10%.
“The growth should be from developing countries, as their glove usage per capita of about 10 pieces per annum (ppa) still significantly lags behind that of developed countries at about 200 ppa, ” RHB Research explained in its note to clients yesterday.
RHB Research maintained its “buy” call on Comfort Gloves.
It, however, revised its target price for the company to RM2.60 from RM6.80 previously after changing the valuation method.
“We now value Comfort Gloves using discounted cash flow (DCF) to be consistent with other glove companies under our coverage. Our previous valuation method was price-earnings (P/E).
“We believe the DCF valuation is more suitable to capture Comfort Gloves’ long-term prospects, post Covid-19, ” it explained.
RHB Research said the new target price reflected 10.1 times P/E for financial year (FY) ending Jan 31,2024, versus previous valuation of 14.3 times FY24 P/E.
The implied lower P/E valuation reflected the sector’s de-rating, on market concerns of lower glove average selling prices (ASPs), post the availability of vaccines, it said, adding that it expected long-term ASP for nitrile gloves to be at US$40 per 1,000 pieces.
“As the US plans to build its own glove-manufacturing plants, we estimate that the cost of production will be at US$40. This should set the long-term global nitrile glove prices.
“When ASPs drop below US$40, US producers will stop producing, and in the long term, ASPs should revert back to this level, ” RHB Research said.
It viewed Comfort Gloves as a “value play” now, following the 70% share price decline from its August 2020 peak. It noted the counter was currently trading at a low FY24 P/E of 8 times, which represented a 52% discount to its average P/E of 16.6 times.