Koon Yew Yin 18 July 2020
Investors must read the following RHB OSK buy recommendation with a target price of Rm 4.80:
RHB OSK Upgrade to BUY from Neutral with new MYR4.80 TP from MYR3.18, and 41% expected total return. The glove shortage has worsened as COVID- 19 cases in the US surged 24% MTD. We raise our earnings estimates and TP on higher ASPs. Our TP is based on CY21F P/E of 25x, which is at a 30% discount against peer average. This reflects its smaller market cap/liquidity to peers. BUY for its FY21 (Jan) 128% earnings growth, supported by 10% ASP increase and 14% capacity expansion.
Capacity expansion. We expect Comfort Gloves to add six production lines in FY21. Upon completion, its production capacity will increase by 14% to 5.9bn pieces pa (ppa).
After I studied the buy recommendation by RHB OSK, I calculated the market cap of Comfort to produce 1 glove in comparison with Supermax.
Current Comfort share price is Rm 3.90 and annual production 5.9 billion gloves.
Current Supermax share price is Rm 17.70 and annual production 25.7 billion gloves.
Comfort market cap 580 million total issued shares X Rm 3.90 = Rm 2.262 billion.
Supermax market cap 1360 million total issued shares X Rm 17.70 = Rm 24.07 billion.
Comfort market cap Rm 2.262 billion divided by 5.9 billion gloves = 38 sen per glove.
Supermax market cap Rm 24.07 billion divided by 25.7 billion gloves = 94 sen per glove.
Based on my above calculation, Comfort is so much under-priced. That is why RHB OSK has Rm 4.80 target price for Comfort Glove.