SINGAPORE (Oct 12): CIMB has upgraded its call on Riverstone Holdings from “hold” to “add”, on falling raw material prices and capacity expansion, with a new target price of $1.92, from $1.85 previously.

Come end of this year, the company’s production capacity would have increased to 5.2 billion pieces, up from 4.2 billion pieces at end of last year. The company has indicated that these additional one billion pieces have been taken up by orders from existing and new customers.

This has given the company the optimism to further boost this capacity by another one billion pieces in the third quarter next year. The company is now operating at a 90% capacity utilisation rate, which is close to the optimal, notes CIMB.

Under its agreement with the customers, Riverstone has to pass on benefits of lower raw material prices to the more competitive generic healthcare glove segments.

However, for the cleanroom gloves market, where Riverstone has a bigger pricing power, it has more room to enjoy the cost savings, notes CIMB.

CIMB is raising its FY15 to FY17 core EPS forecast for Riverstone by 2.2 percentage points to 10%. The revised target price of $1.92 is pegged to 18.7 times 2016 earnings, which is in line with its peers.

As at 11.08am, Riverstone Holdings shares was up 3.5 cents to $1.76.