Koon Yew Yin 27 May 2020
As all investors should know that due to Covid 19 pandemic the demand for gloves far exceeds supply. As a result, the price for gloves continues to go higher and higher and all glove manufacturers are making increasing profit which is being reflected on their share prices. Among all the glove makers, I consider Comfort has the best profit growth prospect which is the most powerful catalyst to push up share price. Comfort’s financial ends in January 2020. Since February the company has added 6 new production lines to its original 49 lines. The increase production is most timely to take advantage of the higher selling prices of their gloves. Unfortunately, Comfort is relatively a small manufacturer and it does not have so much of publicity as Supermax which has shot up Rm 1.15 today. Today Comfort went up 22 sen.
From my experience during the SARS pandemic when I was the 2nd largest shareholder, I noticed that the demand for gloves would continue even after the Covid 19 pandemic was under control because the people who needed to use gloves got used to the routine of using gloves. In any case, many scientists predicted Covid 19 pandemic will not be under control for at least another year until a vaccine is approved by FDA.
US Import Alert
Some investors might be concerned about the US Import alert warning published on 25 May 2020 to control the quality of imported gloves to US. This is a general notice and Comfort is not specifically mentioned. In any case, US is not the only buyer of gloves. Comfort can sell to China, Europe and many other countries.
Dato Lau Eng Guang selling
Some investors might be concerned by the sale of shares by Dato Lau Eng Guang, He has been selling a couple of million shares a day. He sold a total of 13,750,000 shares which could not have dampened the share price because the daily traded volume is 80-100 million.
Institutional investors usually hold many counters in their portfolio. Most of their holdings are being depressed by Covid 19 and they have to sell to cut loss. There are not many stocks for them to buy except Comfort, Supermax etc. That is why the daily traded volume is 80 to 100 million shares. This shows that many rich institutional investors are interested in this stock.
My purpose of writing this piece is help readers to make good decisions. You must remember, whether you buy or sell does not make any difference because the daily volume is so huge.
What you should do?
I see from the i3investors forum, some commentators are wishing the price to go up, some are wishing the price to drop and some are so confused and they do not know what to do. Since it has been fluctuating quite wildly, day traders can buy and sell to make some money. But remember, long term investors can make more money by just buy and wait for it to go high and higher until the demand for gloves is reduced or when the company starts to report a reduced profit. You should not sell as long as the company can continue to report increasing profit.
I have Mr Ooi Teik Bee’s permission to publish a large part of his weekly recommendations to his subscribers as follows:
- Enclosed is the technical chart of Comfort for your reference.
- Money flows into this stock.
- Blue color Force Index accompanies high volume.
- Golden Cross Buy signal appear on 13/4/2020.
- The present price had crossed 20-day EMA, 70-day SMA and 200-day SMA respectively.
- All indicators are showing buy signals.
- The weekly MACD also shows a buy signal on 6/4/2020, the uptrend will last for a long time.
- TA reading is super bullish.
3 important features appeared in the technical chart
- I want the following features to appear in the technical chart so that the probability to win on this stock is very high.
- The Golden Cross of 20-day EMA to cut above 70-day SMA had been formed on 13/4/2020.
- The share price of Comfort is higher than 70-day SMA to create a 3-month high on 2/4/2020.
- MACD buy signal appeared, both the Blue and the Red lines are above zero level to show a stronger momentum.
FA of Comfort
Please read the below link for quarter results.
- There are 4 quarters of positive growth.
- In Q4 2020 report, Revenue, PBT and PAT are at all time high in the last 9 quarters.
- The quarter result from Q1 2021 onward will be very impressive due to Covid-19 pandemic.
- I also believe all 4-quarter results in 2021 will be very good because the selling price of glove had been increased at least 30% especially in Q2, Q3 and Q4 2021.
- Comfort has a niche market on nitrile glove. 85% of its output are nitrile glove and 15% of its output is latex glove. The nitrile glove offers higher degree of protection against virus on top of puncture resistance and dexterous strength.
- From February 2021 onward, it has added 6 production lines to its original 49 lines. The capacity will be increased by another 12% to cope with the high demand for gloves worldwide due to Covid-19 pandemic.
- PAT for FY 2021 will be very impressive, I expect PBT for every quarter in FY 2021 to be at least 54 million per quarter. It means 216 million PBT for FY 2021.
- If there is a second wave of Covid-19 in second half of 2020 or 2021, the PBT for FY 2021 will be more than 54 million per quarter.
How I derive Profit before tax of 216 million in FY 2021
- FY 2021 starts from February 2020 to January 2021.
- I take the revenue of Q4 2020 result to be used to calculate PBT.
- The price increase on glove is 30% in FY 2021, PBT= 139 million * 30% = 41 million.
- The average PBT in Q4 2020 is around 13 million, total PBT = 41 + 13 = 54 million.
- I assume the PBT per quarter in FY 2021 is 54 million per quarter.
- I did not take into consideration the production cost reduction in term of lower raw material cost.
- I also did not take into consideration of the 12% capacity increase in 2021.
- I assume 25% income tax, below is my projected PAT for 2021.
|Stock||Year||Price||Revenue||PAT||EPS||PER||Target price||Gain %|
- Comfort is one of the best rubber globe stocks in term of fundamental, its fundamental can be as good as Supermx. However, Comfort is a smaller company compared against Supermx, hence not many analysts cover this stock.
- The market cap of Supermx is 5.78 billion. The market cap of Comfort is 1.20 billion. Supermx is 381% bigger in market cap than Comfort.
- Using the PAT in the latest quarter result of Supermx and Comfort respectively to compare, PAT of Supermx is 200% higher than Comfort. The difference of 181% extra in market cap of Supermx indicated that the share price of Comfort is undervalued if compared against Supermx.
- The share price of Supermx started to breakout around 1.70. The present price of Supermx is at 4.25, the share price had increased 150%.
- The share price of Comfort started to breakout around 1.00. The present price of Comfort is at 2.05, the share price had increased 105% only.
- The glove sector is super bullish after March 2020 due to Covid-19 pandemic. It will remain bullish until there is a vaccine for Covid-19 pandemic. I believe it will last for one to two years down the road.
- The calculated EPS=0.28, I will give a 10% allowance for the margin of error. The resultant EPS = 0.25. The target price is at 5.00 assuming PER=20.
- For FY 2021, the target price is at 5.00. The potential gain is 143% if you buy it at 2.05.
- Comfort has a niche market on nitrile glove compared against Supermx. 85% of its output are nitrile glove and 15% of its output is latex glove. The nitrile glove offers higher degree of protection against virus on top of puncture resistance and dexterous strength.
- The target price of Supermx given by Kenanga today is at 6.00. Hence I believe the target price of Comfort set by me at 5.00 is quite reasonable. Most of the time, the share price of Supermx is about 1.00 higher than Comfort.
- The strong support is at 2.00. I recommend you to buy around 2.05.
- You have to decide yourself if you want to chase up the price.
- The stop loss is at 1.50.
- Both TA and FA of Comfort are very good.
- Buy and hold strategy is the best for this stock in order to win big.
Risk on rubber glove stock
- The risk is high once a vaccine is found on Covid-19.
- I believe it will take at least a year before a vaccine is approved to use to treat Covid-19.
- The present order book of Comfort is very good until April 2021. The share price of Comfort will continue to go up north until a vaccine is found.
- The risk is very much reduced if the vaccine is approved to be used to treat Covid-19 after April 2021.