The team of analysts at RHB Bank Singapore have kept their “buy” call on Riverstone Holdings AP4 at a lowered target price of $1.04 from $1.05 previously, as they trim their FY2024 to FY2026 earnings estimates by 2% each year due to the weakening US dollar (USD) against the Malaysian Ringgit (MYR).
They write in their Aug 8 report: “Our 2HFY2024 outlook for Riverstone remains positive, premised on the recovery of global semiconductor sales and improving market dynamics within the healthcare glove industry. We continue to like the company for its unique exposure in the cleanroom segment, above-industry margin profile and a consistent dividend payout.”
During the 2QFY2024, Riverstone’s cleanroom gloves (CG) average selling price (ASP) stabilised q-o-q at US$90 per 1,000 pieces. On the other hand, its healthcare gloves (HG) ASP decreased to US$26 to US$27 per 1,000 pieces from US$29 the quarter before, due to the shift in product mix towards generic products.
“Management indicated that it aims to put greater emphasis on healthcare specialty products (which have higher ASPs) to differentiate itself from competitors within the generic product segment,” writes the team.
During the same period, CG sales volume improved 5% q-o-q while HG sales volume remained flattish q-o-q, due to the delayed shipments of 140 million gloves caused by the Red Sea crisis.
Growth momentum in the CG segment is expected to continue in the coming quarters, underpinned by sustained orders from US customers.
See also: RHB initiates coverage on CSE Global with ‘buy’ call with TP of 58 cents
Meanwhile, in the 1QFY2024, gross profit margin (GPM) in the CG segment grew to 60% from 55% in the previous quarter, while GPM in the HG segment hovered around 23% to 24%.
Altogether, group GPM grew to 40.2% in the 2QFY2024 vs 1QFY2024’s 39.1%, largely driven by improved operating efficiency.”
The team at RHB writes: “We expect Riverstone’s margins to strengthen further, on the back of normalising costs and sustained growth from the CG and HG segments.”
See also: Suntec REIT biggest beneficiary from MAS’s ‘looser’ leverage, ICR rules: OCBC
They continue noting that Riverstone intends to expand its healthcare specialty and CG segments, with around nine single lines totalling 1.05 billion pieces in annual capacity to be added by end-2024, and to put greater emphasis on growing its Class 100 CG segment.
Key risks noted by the team include lower-than-expected sales volumes and higher-than-expected raw material prices.
Shares in Riverstone Holdings closed 0.5 cents lower or 0.54% lower at 92 cents on Aug 8.
