Riverstone Holdings
Price target:
RHB Bank Singapore ‘buy’ $1.02
Industry dynamics remain positive amid short-term challenges
The global recovery of semiconductor sales and “improving market dynamics” within the healthcare gloves industry keep RHB Bank Singapore analysts “positive” on nitrile glove producer Riverstone Holdings AP4 2HFY2024 outlook.
In an Oct 7 note, RHB analysts highlight that semiconductor sales spiked 19% y-o-y in July. The current industry operating dynamics remain in favour of local glove manufacturers as customers are more receptive to the increase in average selling price (ASP).
That said, RHB says industry-blended ASP is set to improve further to US$21–US$22 ($27.40–$28.71) per 1,000 pieces by 4Q2024 as Malaysian glovemakers are in the discussion stage to raise prices to translate the effect of the weakening US dollar to customers.
Meanwhile, Chinese glovemakers’ ASPs now range between US$18 and US$19 per 1,000 pieces, up from between US$17 and US$18 in the previous quarter.
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In terms of demand, Malaysia’s gloves export volume surged 66% m-o-m and 105% y-o-y in August, outpacing the growth in July. The latest export volume is even 34% higher compared to the pre-pandemic’s two-year monthly average number, indicating that the recovery momentum of global gloves demand remains healthy, says RHB.
“Meanwhile, prospects in the global semiconductor industry are expected to be driven by the increasing demand for generative artificial intelligence, high-performance computing and rapid advancement of the AI industry,” add RHB analysts.
US-China relations
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In addition, RHB believes Riverstone could benefit from potential trade diversion with the latest revision of higher import tariffs by the US on China glovemakers.
The Office of the United States Trade Representative (USTR) announced on Sept 13 the final modifications concerning the statutory review of tariff actions on China, entailing a new set tariff rate on medical and surgical gloves, which will be revised to 50% and 100%, effective 2025 and 2026 respectively; up from 25% effective 2026 as proposed in May.
RHB expects Riverstone to benefit from the potential trade diversion, given that the healthcare gloves segment contributes more than 55% of its revenue.
Upcoming earnings
In August, Rivertone posted earnings of RM144.7 million ($42.9 million) for 1HFY2024 ended June 30, some 54.6% higher than RM93.6 million in the previous year.
That came from revenue increasing by 7.4% y-o-y to RM496.4 million, primarily fuelled by recovering demand for cleanroom and healthcare gloves.
Looking ahead, RHB lowers its FY2024–FY2026 earnings forecast by 3%, 8% and 8% each year. According to the analysts, this “largely reflects” the impact of the weakening US dollar against the Malaysian ringgit.
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RHB’s USD/MYR assumptions for FY2024-FY2026 are lowered to 4.50, 4.00 and 4.10. For every 5% change in USD/MYR, the impact on Riverstone’s net earnings is 8% for both FY2025 and FY2026.
“Nevertheless, we believe the impact could be mitigated by the company raising ASP to offset against the weakening US dollar, which should sustain our base case long-term margin outlook. Currently, it is in discussion with customers to raise prices by at least US$1,” says RHB.
Riverstone’s valuation remains “compelling”, says RHB, as it is trading at 0.2 standard deviations above its pre-pandemic historical mean.
With the earnings adjustment, RHB’s new target price is $1.02, down from $1.04. — Jovi Ho
Aztech Global
Price target:
CGS International ‘add’ $1.21
Company likely to maintain eight-cent dividend over FY2024 to FY2026
CGS International analyst William Tng has maintained his “add” call and target price of $1.21 on Aztech Global 8AZ Ltd after visiting the company’s plant in Pasir Gudang on Sept 26.
On Nov 14, 2022, the company announced that it agreed to purchase a 300,000 sq ft plant in Pasir Gudang, Johor, Malaysia for RM66.8 million ($20 million at the time). According to Tng, the facility began full scale operations in 3Q2023.
In his report dated Oct 4, Tng notes that the plant can undertake complete product builds for customers and is capable of plastic injection moulding, printed circuit board assembly and product assembly, among others. This plant has also achieved the ISO 13485:2016 certification, enabling Aztech to manufacture medical devices, he adds.
Tng believes that the forecasted average utilisation rate for this plant in 3QFY2024 is likely to be around 50%, and there is potential for Aztech to pursue more orders to reach its full capacity.
In a presentation by Aztech, it was noted that three products from the health, tech and consumer segments have successfully entered commercial production and five new products in the communication, consumer and health tech segments are scheduled to achieve commercial production by the end of FY2024.
Downside risks include order cancellations due to a global economic slowdown affecting demand and volatile foreign exchange rate movements that affect its financials.
“During 3Q2024, the US dollar (USD) depreciated 5.24% against the Singapore dollar (SGD) and 3.42% against the renminbi (RMB), which we believe is likely to lead to foreign exchange losses in the company’s financial performance for the quarter. A slowing order book is also a potential concern,” Tng adds.
Despite this, Tng believes that Aztech could maintain its 8 cents dividend per share (DPS) over FY2024 to FY2026 forecast, providing investors with a potential 7.84% dividend yield. At the same time, Tng expects earnings per share to grow at an average of 14.2% over FY2025 to FY2026 forecast.
Tng’s target price is based on Aztech’s FY2025 forecasted P/E ratio of 8.7 times, which is its three-year average. — Cherlyn Yeoh
UOL Group
Price target:
Citi Research ‘buy’ $9.20
UOL’s Meyer Blue asset had ‘surprisingly good take-up’
Citi Research analyst Brandon Lee is keeping his “buy” call on UOL Group (UOL) with an unchanged target price of $9.20 following the 50% take-up of its Meyer Blue asset at an average selling price of $3260 per sq ft on the first day of its private launch.
Meyer Blue is a freehold 226-unit mid-end condominium owned and developed by an 80%/20% joint venture (JV) between UOL and its 50.4%-owned Singapore Land Group U06 .
According to information from EdgeProp Singapore, Lee notes: “The 50% take-up for UOL’s Meyer Blue exceeded our expectations, which we attribute to exclusive location, freehold status and relative pent-up demand, though similar take-ups should not be replicated across the majority of upcoming projects given different attributes, in our view.”
Notably, the average selling price was above the highest end of the recently transacted price range of three projects nearby.
On this, Lee notes that if UOL can sustain similar pricing for the remaining unsold portion, a profit before tax margin of above 15% and a revised net asset value (RNAV) accretion of around 1% can be attained.
“With its next new launch (the 1,195-unit Parktown Residence) only in 1QFY2025, we expect UOL to market existing projects more proactively, specifically Pinetree Hill which still has 274 unsold units,” writes Lee.
The analyst understands that UOL and City Developments (CDL) are the most direct proxies to the Singapore property sector, given their respective 86% and 52% exposure.
He expects UOL to benefit from a decent take-up for two of its residential launches in 2HFY2024 and more redevelopment of its aged commercial properties.
Key downside risks noted by Lee include capital rate expansion as interest rates rise, a sharp economic slowdown resulting in weaker-than-expected office and retail net absorption, a fall in tourist arrivals and corporate demand resulting in revenue per available room (RevPAR) declines and lastly, a prolonged period of existing cooling measures. — Douglas Toh
