SINGAPORE (Dec 14): UOB Kay Hian is keeping its “hold” call on glovemaker Riverstone Holdings amid expansion at its Taiping plant in Malaysia going according to plan.

UOB is recommending a target price of 94 cents at an entry price of 80 cents.

Riverstone is on a 5-phase expansion project to bring total production capacity to 8.2 billion pieces of gloves by 2018. The company plans to increase production capacity by 1 billion pieces each year.

“Expansion plans seem to be on track where building construction for Phase 4 has started and is scheduled to complete in Jul 17,” says UOB lead analyst Thai Wei Ying in a Monday report.

Thai reports that the first three phases in the expansion are operating smoothly, with firm demand and utilisation at 95%.

Amid concern that the company could be affected by Bank Negara Malaysia’s recent directive for exporters to convert 75% of their proceeds into ringgit to boost the currency, Thai says the impact is nominal for Riverstone.

“The initial concern was that rubber glove markers would lose their natural hedge as the industry typically uses the US dollar as a hedge to cushion the cost of raw materials,” say Thai.

However, raw materials in US dollars make up only 30-35% of Riverstone’s production cost, Thai says. In addition, Riverstone can switch to local suppliers who deal in ringgit.

Meanwhile, Thai says heathcare gloves are entering a “steadier state” with the average selling price decline largely abating.

Sales volume for cleanroom gloves has also recovered from the lows in the first half of 2016.

Thai says this is mainly due to a pick-up in demand from component manufacturers for smartphones and tablets, as well as from the automobile sector.

“We expect 2017 performance to recover on a low base on the back of higher utilisation and improved operational efficiency,” Thai says.

However, the turnaround is expected to be gradual amid a shift in product mix and the lack of pricing power in a competitive operating environment.

As at 11.06am, shares of Riverstone Holdings are trading flat at 85.5 cents.