COMFORT (2127) Comfort Gloves Berhad Detailed Analysis - Is it already overvalued? Buy or No Buy? Sell? - by Top 1 Analyst in i3investor BabyAce
Stock to review: Comfort Gloves Berhad (2127) Current share price as at 3/7/2020: RM3.39
Principal activities: Comfort Gloves Bhd is engaged in the manufacture and trading of natural and synthetic specialty examination gloves. The company’s segment includes Manufacturing, Investment holding, and Others. The manufacturing segment is engaged in the manufacture and trading of latex gloves. The investment holding segment comprises of investment holding and provision of management services. Its other segment is involved in the trading of latex gloves. The company has two manufacturing plant located in Simpang and Matang, Taiping.
Before I start, I'm from audit background and have been auditing one of the listed company a few years back before I left one of the big 4 accounting firm. Their share price had also increased crazily this year. So I have some knowledge into their operations having visited their factory and how their production line operates during those year, what's their costs base and the accumulated knowledge in the industry. The management of that Company have been nice to me, so it's natural that I remember them well.
Current Position of the Group (Based on latest Quarter Report 30 April 2020)
Statement of Financial Position (SOFP)
a) Cash and bank balances increased from RM34.8mil (31/1/2020) to RM69 mil (30/4/2020)
Well, pretty good an increase of RM34.2mil. Operating cash flow is good.
b) Borrowings increased from RM84.4mil (31/1/2020) to RM95.6mil (30/4/2020)
There is an increase of RM11.2mil. This is due to the increase of bills payables which needed to be secured to their suppliers. So it's fine for me.
Everything seems okay in this respect and I have no further comments as its managed well.
Earnings and Future Prospects
1. It is high growth stock?
Definetely. Everyone would agree with me. Profit growth always push a share price higher and higher. Ok, lets move on.
2. Lets see the quarter results and the earnings to far. Let me just gauge the future fair value of the shares in the future. I have 2 methods in mine and after comparing I will use the higher one, since everyone now is so optimistic about the glove industry. So this year got Covid-19 confirm earnings will be higher correct? So my assumptions take into the account of 5 years starting 2020 Covid-19 will last and thereafter things will normalised.
a) 500% growth based on last years earnings on top of 5 yeats this Covid-19 lasts - EPS for financial year 2020 was 5.84 sen in total if you sum it up. Alright so last year EPS was 5.84 under normal curcumstances. This year got Covid-19, so I assume based on Covid-19 it is reasonable if I take based on last year earnings x 500%? I'm being very optimistic there already. 5.84 sen x 5 = 29.2 sen/year
I assume Covid-19 will last 5 years as stated above hence, 5 years x 29.2 sen will give me 146 sen = RM1.46
Normal times Comfort is always around RM1. So if I add up everything RM1.46 + RM1 = RM2.46
So RM2.46 (assumption no 1)
b) Based on the following link, it was said that the management represented next quarter is EPS 6 sen. I help you put 10 sen/quarter so 1 year is 40 sen, hence 5 years is RM2 for the EPS
So add RM2 EPS to the normal RM1 = RM3.00 (assumption no 2)
So conclusion lets take RM3.00. But I wish to highlight to you that my assumption assumes Covid-19 need 5 years to end, do you think it is reasonable? 5 years for Covid-19 to passed. I think you get what I mean.
Even if you do out discounted cash flow and present value it, you think you will get PE 10?
If you're a market leader like TopGlove or maybe Hartalega, your P/E might be higher due to your commanding position, but if you're of this size what do you think? Having said that, think about it.
For the exposure for the costs side, you still need to see the price of the raw materials. Demand has been increasing, so do you think your costs for raw materials will increase as well? Also another component is about the fluctuation of USD. Comfort has only "hedged" or managed this partially. You still have to be on the lookout on this, which might eat into the margin.
1. What do you think that Comfort deserve such high PE? PE 10? Seriously? I've think this for quite some time, and concluded that the high PE probably because we need to take into account the number of gamblers which follows these "gurus". Just to share with you, I was watching a live from a so call guru and one of the question people ask him is something like this:
Person: "Sifu, so now glove stock go down, how ah? I buy at high price leh. You still holding glove stock ma?
Sifu: Still got a bit lar...Maybe keep first until you see the next quarter report then only decide.
The thing is the person actually bought at a high price and the so called "sifu" obviously bought at a dirt cheap price before asking their followers to buy. So whatever you "sifu" tells you is in his/her best interest and not you. If you bought Comfort say RM3.20 and was watching like last week dropped to RM2.70, how do you feel? If really market crash your sifu sell also make profit but if you...Think about it...
2. When you don't have a plan, you're gambling. I know many are doing that, because whenever share price drop they will ask their "sifu" how how how....Bursa Malaysia is a big casino, and in a big casino the only way to win is to have a certain "edge".
I'm writting this is because there are people who use margin to play and as we all know times are really bad. Some people lost their job, some even salary got reduced, etc. Times are difficult and if you are experiencing difficulty and have a family please always think of them first before you do some goddamn selfish thing. If you want to go ahead whatever decision is yours. If you earn lots of money congrats. It's nothing to do with me, but I think is important to remind some of the people. When people around you without any prior knowledge about the game in stock market bet everything they have and are so confident, that's the time you need to remind them. My friends are like that, so I'm writting this to remind you guys. I'm not obstructing you to get rich, do whatever you think suits you. Just be responsible for your action. You can have many profitable trades, and profitable and huge gain trades and you will feel invincible. However, you forget on very important thing which is the 1 trade that will wipe you out of the game.
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