The Singapore research team at RHB Bank Singapore has upgraded Riverstone to “buy” from “neutral” as it is in a “sweet spot” to capitalise on the recovery of global semiconductor sales.
The team has resumed coverage on the counter on March 21 after the re-allocation of internal resources.
“Global semiconductor industry sales chalked up US$47.6 billion ($63.8 billion) during the month of January, an increase of 15% y-o-y according to The Semiconductor Industry Association (SIA),” the team writes.
“The outlook for 2024 is expected to be poised for a recovery (estimated 2024 growth of 13%) following a 9% contraction in 2023. As such, Riverstone is expecting its cleanroom gloves average selling price (ASP) to hold up steadily at US$90 /1,000 pieces driven by solid customer demand from various technology industries such as hard disk drive, sensor, chip manufacturing, among others,” it adds.
Riverstone is also tipped to benefit from the pick-up in demand in the healthcare segment as the demand-supply dynamics are expected to reach equilibrium by 2H2024.
“Positively, customers’ orders for healthcare gloves have been picking up (for April and May) mainly driven by the increased demand for specialty healthcare gloves (i.e. de-contamination use). More so, the company successfully raised its healthcare gloves ASP to US$28.50 from US$26.50 in 4QFY2023,” says the RHB team.
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“Moving forward, it intends to prioritise its specialty products after decommissioning 13 old and inefficient lines in 4Q2022,” it adds.
Moving forward, the team expects Riverstone to see a core profit growth of 23% y-o-y in FY2024 underpinned by the robust recovery of global semiconductor sales and better demand visibility for healthcare gloves by 2H2024.
“Positively, Riverstone is the only Malaysian glove maker that is still posting double-digit core profit margin while continuing its consistent dividend payout,” it writes.
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“We like the company for its unique exposure to the cleanroom segment, above-industry margin profile, and consistent dividend payout,” it adds.
To this end, the team has increased its earnings estimates for FY2024 to FY2025 by 14% to 24% to account for improving sales volume with a better product mix like customised healthcare gloves and cleanroom gloves, which should sustain its ASP moving forward.
The team has also upped its target price estimate to 93 cents from 74 cents previously. The target price implies 18 times Riverstone’s FY2024 P/E, which is 0.7 standard deviations (s.d.) from its pre-Covid-19 five-year historical mean of 14.8 times.
The target price is no environmental, social and governance (ESG) premium.
As at 4.42pm, shares in Riverstone are trading 5 cents higher or 6.54% up at 81.5 cents.
