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Industry Overview
Manufacturers of medical gloves based in Malaysia. By now, I believe many of you would have known the reason behind my specific interest in this industry. For some of you who are still clueless about the recent developments, I am going to share a few headlines from international newspapers and hopefully, you will then get a rough idea. 
"Now the worlds' hospitals are running out of vital rubber gloves". (Bloomberg, 26 March 2020)
"Coronavirus: Supermax's 88.5m gloves bought for NHS". (BBC, 27 March 2020)
"World's largest glovemaker sees shortage as coronavirus fight spikes". (Reuters, 29 March 2020)
Interesting fact: As per Bloomberg, Malaysia's companies caters for approximately 67% of the global demand; 345 billion units annually. 
The Players
Based on my findings through S&P Capital IQ, five companies are primarily engaged in the manufacturing of gloves. I agree that some other companies are also engaged in the manufacturing of gloves but I have decided to exclude them due to relatively smaller size compared to these five companies below. 
1. Top Glove Corporation
2. Hartalega Holdings 
3. Kossan Rubber Industries
4. Supermax Corporation 
5. Comfort Gloves
(millions) Hartalega Holdings Top Glove Corporation Kossan Rubber Industries Supermax Corporation Comfort Gloves
Market Capitalization  23,007 16,345 6,522 2,249 478
Data Source: S&P Capital IQ (30 March 2020)
Financial Metrics
I believe many of you would look at various financial metrics but I have narrowed it down to only a few which I feel relevant and useful to be assessed. (This is one area that I would love to hear your feedback especially which metrics do you use and why you find them to be useful). 

  Hartalega Holdings Top Glove Corporation Kossan Rubber Industries Supermax Corporation Comfort Gloves
Market Capitalization  23,007 16,345 6,522 2,249 478
Total Revenue CY19 2,829 4,748 2,222 1,541 511
EBITDA CY19 661 640 384 203 68
EBITDA Margin CY19 23.4% 13.5% 17.3% 13.2% 13.3%
CY19 - Calendar Year 2019 (Jan19-Dec19). The fiscal year for each company differs hence I decided to use CY. 
Market Capitalisation is calculated based on the latest closing price. 
Data Source: S&P Capital IQ (30 March 2020)
From the data above, it is worthwhile to note that while Hartalega has the largest market capitalisation among the five companies, it is Top Glove Corporation which records the highest revenue for the fiscal Year 2019 amounting RM4.7 billion. Top Glove is also the world's largest glovemaker hence from now on, we will use Top Glove as our main benchmark. 
The reason I chose to look at EBITDA is that EBITDA measures the cash profit of a company and it eliminates other unique factors such as depreciation and amortisation. Of course, there will be a concern that EBITDA also eliminates interest payment hence in a way it can be argued that it doesn't give a good picture about the company's financing decision (debt & equity). We will look at it at a later stage. 
Comfort Gloves's EBITDA margin of 13.3% is almost the same as the industry's leader, Top Glove Corporation, hence the company has a sound operating profitability and efficiency. 
Liquidity 
  Hartalega Holdings Top Glove Corporation Kossan Rubber Industries Supermax Corporation Comfort Gloves
Total Debt to Capital  9% 36% 27% 25% 20%
EBITDA/Int Expense 57.1x 8.4x 25.8x 10.5x 16.9x
Cash & Cash Equiv. 205 275 163 158 35
Data Source: S&P Capital IQ (30 March 2020)
From the table above, it can be observed that Hartalega is a cash-rich company whereby the total debt ratio is merely 9% but the cash & cash equivalent amounts to RM205 million. Excluding Hartalega, the total debt ratio of the other three players ranges between 25%-36%. Comfort Gloves has a debt ratio of 20% only; significantly lower than the industry leader (Top Glove). The interest coverage ratio of Comfort Gloves is 17x which again indicates that the company has a sound operating profitability. 
Valuation
In this section, I decided to assess the valuation multiples based on Enterprise Value/EBITDA and also Price/Diluted Earnings Per Share before Extraordinary Items. EV/EBITDA looks at the entire market value rather than just the equity value, so all ownership interests and asset claims from both debt and equity are included (Corporate Finance Institute). For P/E ratio, I chose to use Diluted Earnings per share because diluted EPS enables us to gauge a company's quality of earnings per share assuming all convertible securities are exercised (Investopedia). 
  Hartalega Holdings Top Glove Corporation Kossan Rubber Industries Supermax Corporation Comfort Gloves
P/Diluted EPS LTM  56.0x 44.7x 29.0x 21.8x 14.3x
EV/EBITDA LTM 34.9x 26.6x 18.1x 12.2x 7.8x
Data Source: S&P Capital IQ (30 March 2020)
The table above clearly shows that the stock price of Comfort Gloves is trading at a deep discount; valuation multiples being far lower than industry leader and also industry average. 
Fair Value of Comfort Gloves
Valuations are very subjective hence there is not a single price that should be the fair value for a company. Nevertheless, the share price of a company should trade at a valuation multiple closer to the industry leader/average. Excluding Hartalega, the average P/E ratio of TG, Kossan and Supermax is 31.83x [(44.7+29.0+21.8)/3]. 

  Comfort Gloves Comfort Gloves Comfort Gloves Comfort Gloves
Average P/Diluted EPS LTM  31.83x 21.8x (Supermax) 29.0x (Kossan) 44.7x (TopGlove)
Diluted EPS Excl Extra Items (as of 31.01.2020) 0.058 0.058 0.058 0.058
Fair Value of Share Price (RM) 1.84 1.26 1.68 2.59
The minimum fair value of Comfort Gloves's share price should be RM1.26 while the maximum fair value is RM1.84. I will exclude the calculation based on Top Glove's P/E ratio because it is too high and there is a specific reason why Top Glove trades at that multiple. 
Conclusion
Given the increasing demand for medical gloves, it is evident that Comfort Gloves will continue to deliver a strong financial performance especially for the Calendar Year 2020. The closing price as at 30 March 2020 is RM0.82 indicating a 54% discount to the minimum fair value of its share price (RM1.26). Remember, that number hasn't even incorporate the rapidly rising demand for medical gloves.
Disclaimer
None of my posts was meant to influence your investment decision. I decided to share my analysis of stocks so that I could benefit from your constructive feedback. As I have mentioned earlier, I am here to share my knowledge and also to learn from many of you. In specific to this post, I am not a substantial shareholder of Comfort Gloves Berhad.
Thank you, and please leave your constructive feedback.
Kaviyarasu

https://klse.i3investor.com/blogs/kaviyarasu/2020-03-31-story-h1485727040-Comfort_Gloves_Stock_ID_2127_A_Relatively_Undervalued_Stock.jsp

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