SINGAPORE (May 22): With margins under pressure at Riverstone Holdings, analysts say growth recovery would only be seen after 1Q19 given its expansion plans are on track.

In 1Q19, Riverstone reported revenue grew 14.6% on the back of a higher annual glove capacity of 9 billion from a year ago.

However, net profit declined 2.8% y-o-y to RM30.2 million, which CGS-CIMB deemed slightly disappointing at 21.3%/20.7% of its/consensus’ FY19F forecasts.

CGS-CIMB analyst Colin Tan says the decline was mainly due to a drop in ASPs for healthcare gloves and higher taxation as a result of higher profits from subsidiaries that do not benefit from tax incentives.

“We maintain our ‘Add’ call on Riverstone with an unchanged target price of $1.22, based on 16.5x FY20F earnings, a 19% discount to its Malaysian peers’ average of 20.1x,” says Tan.

Meanwhile, DBS Group Holdings is maintaining Riverstone at “hold” given margins are still under pressure from rising competition, especially in the healthcare space.

DBS says Riverstone’s 1Q19 results came in below expectations. Decline in ASP and change in product mix affected gross profit margins.

Although Phase 5 expansion plans are completed, the group is planning for a Phase 6 plan to 10.4 billion by the end of 2019.

DBS has cut earnings by 19% for FY19F and 17% for FY20F to account for lower margin assumptions.

“Our target price of $1.03 is pegged to average PE of 16.8x, which is also a 20% discount to larger peers, on blended FY19F and FY20F earnings,” says analyst Ling Lee Keng.

However, the research house still sees value in Riverstone’s hard-to-replicate cleanroom business that sets it apart from its competitors and commands significantly higher margins.

As at 3.21pm, shares in Riverstone are trading flat at 94 cents.