SINGAPORE (Aug 7): CIMB and Maybank are taking opposite sides when it comes to rating Riverstone.

CIMB is keeping its “add” call on Riverstone while Maybank is cutting the stock to “hold”.

In a Monday report, analyst John Cheong says Maybank has downgraded Riverstone as the recent share price rally has priced in the positives.

Although the group’s 1H17 core earnings were in line with both CIMB and RHB, its 2Q17 earnings declined q-o-q by 15% due to volatile raw material price and increased production cost.

The higher cost of raw material inventories purchased in 1Q17 was recognised in 2Q17 and also resulted in a lower gross margin.

“As the price has reverted to a low level and stabilised, we expect the gross margin to normalise subsequently,” says Cheong.

The group managed to maintain a healthy balance sheet with a net cash position of RM85.3 million ($27.1 million) as at end June and RM37.6 million in cash from operations.

Meanwhile, CIMB analyst William Tng says, “The strong balance sheet, healthy operating cash flow and the flexibility of utilising more external debt provides the Group ample ammunition for future expansion, in our view.”

In a Monday report, Tng says the group’s expansion plans are being driving by high demand from customers, particularly mobile table customers in the cleanroom space.

“In the healthcare space, management noted that gloves are getting more affordable and creating new sources of demand apart from the traditional heavy users in the healthcare space,” says Tng.

Out of Riverstone’s seven new production lines, two will start its production in Aug 2017, while the rest of the lines will be commissioned by 2017.

Despite the group’s management predicting that it can benefit from the lower raw material prices to revert its gross margin back to a range of 25-27%, Tng has instead opted to be more conservative and assumed about 24% gross profit margin over the forecast period.

CIMB and Maybank have target prices of $1.20 and $1.05 respectively.

As at 11.11am, shares in Riverstone are trading at $1.06.