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Riverstone gets double take from analysts following 3Q2021 results

Amala Balakrishner
Amala Balakrishner11/12/2021 06:33 PM GMT+08  • 4 min read
Riverstone gets double take from analysts following 3Q2021 results
Riverstone expected to give out higher dividends: DBS analyst Ling Lee Keng
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Glove manufacturer Riverstone Holdings remains a counter on analysts’ watch lists, following a 49.2% y-o-y jump in its 3QFY2021 earnings to RM266.4 million ($86.3 million).

This follows continued demand for its healthcare examination gloves, even though several countries have been treating Covid-19 as endemic.

See: Riverstone still sees strong 3Q results despite shift to 'endemic' Covid-19

Analysts from CGS-CIMB Group Research, UOB KayHian (UOBKH) and RHB’s small cap Asean research team say the group’s results were “broadly within expectations”.

However, DBS Group Research analyst Ling Lee Keng says that Riverstone’s 9MFY2021 earnings – which came in at RM1,307.1 million – exceeded her expectations.

She attributes this to robust demand for the group’s high-tech cleanroom gloves, thanks to sustained growth in orders from its long-term customers in industries such as electronics, semiconductors, batteries, manufacturing and sensors and lenses.

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However, she highlights that the company has yet to fulfill some orders from the backlog in 3Q2021 due to the Movement Control Order (MCO) and a 10-day closure of its manufacturing plant.

While demand for cleanroom gloves have been consistent, UOBKH analysts Llelleythan Tan and John Cheong note that Riverstone has not been able to take in new orders. The group is now looking to overcome this by shifting some of its dipping line capacities in hopes of increasing production in November.

Meanwhile, Riverstone’s healthcare gloves segment took a hit from a decline in average selling prices (ASPs). This was no thanks to reduced demand from buyers and additional supply from China, Tan and Cheong write.

See also: UOBKH ups Raffles Medical's TP as its transitional care facilities join Singapore's healthcare ecosystem

The duo are expecting the ASPs to continue on a downtrend in the last quarter of the year and decline to around US$35/1,000 ($47.40/1,000) pieces – well within Riverstone’s expectations of US$33-35/1,000 pieces for this segment of gloves.

Meanwhile, CGS-CIMB’s Ong is expecting the ASPs to fall by 47% q-o-q in 4Q2021, due to weaker downstream demand and lower raw material costs. Even so, he stresses that the company’s major customers have turned more active in placing orders for deliveries in December and in 2022.

For comparison, the ASPs for healthcare gloves was around US$69/1,000 pieces in 3QFY2021.

Tan and Cheong have pencilled a 71% y-o-y increase in the ASPs of healthcare gloves in 2021, and a 56% y-o-y decline in 2022.

DBS’ Ling is conversely looking at ASPs stabilising at US$33-35/1,000 piece in December, before stabilising at “around the US$30 range” in 2022.

She highlights that the ASPs for cleanroom gloves is slated to come in firmer, with prices hovering around the US$100 – 120 range since the start of this year. “This could be due to the tight supply and also higher barriers of entry,” she explains.

Riverstone seemingly has an edge in this segment since several of its competitors in this space switched to the production of healthcare gloves due to the strong surge in the segment’s ASPs.

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“[The group’s] significant exposure to the cleanroom space is a key differentiating factor among its peers, and provides earnings resiliency for sustainable growth,” explains Ling.

With cleanroom gloves making up 25% of its annual production volume, Riverstone is seen to a “market leader” of sorts in this segment, adds Ling.

Over 50% of the group’s earnings comes from this segment now, compared to around 70% before the pandemic.

The group is already planning ahead and looking for growth opportunities beyond the pandemic. One such move is to develop new and innovative product offerings in untapped markets such as food processing, pharmaceuticals and surgical glove segments, notes UOBKH’s Tan and Cheong.

However, Riverstone is now facing delays in its capacity expansion plans as the MCO in Malaysia has disrupted construction and other related works.

As such, the group’s new production capacity of 1.5 billion glove pieces is only expected come in 1Q2022, instead of in end 2021 as was announced previously.

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The group also has plans to further add up to 1.5 billion glove pieces such that its annual production capacity will hit 13.5 billion pieces by FY2022/23.

Buy, or no buy?

Looking ahead, the analysts appear mixed on the prospects of Riverstone with DBS’s Ling and CGS-CIMB’s Ong posting “buy” and “add” calls on the counter at a target price of $1.20.

“We could expect a higher dividend for FY2021 as cash and cash equivalents surged 170% to RM1.8 billion as at Sep 30, from RM648.9m as at end of 2020,” says Ling in explanation of her stance.

Meanwhile, UOBKH’s Tan and Cheong and analysts from RHB are maintaining their ‘hold’ and ‘neutral’ calls at 68 cents and 95 cents respectively.

Their move comes amid expectations of “weak quarters” in the months ahead.

Shares in Riverstone closed up 2 cents or 2.60% at 79 cents on Nov 12.

Cover image: file photo

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