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Riverstone Holdings SGX: Riverstone (AP4) - Higher ASPs on the Cards

  • We reiterate our positive view on Riverstone, as we believe higher ASPs are on the cards given the surge in glove demand.
  • We now impute 10%/15% ASP growth q-o-q for healthcare gloves in 2Q/3Q20F. Cleanroom glove prices could also trend up in 3Q20F.
  • We raise our FY20-22F EPS forecasts for Riverstone by 5.7-24.9%. Target Price is lifted to S$3.12.

Surge in Glove Orders From New and Existing Customers

  • Our recent channel checks with Riverstone (SGX:AP4) reveal that it continues to see strong demand for gloves, both from its key existing customers as well as new buyers. This is on the back of the current strong global glove demand owing to the Covid-19 pandemic.
  • We estimate that its order visibility for healthcare gloves has extended up to end-1QCY21, from end-CY20 previously.

Imputing Higher ASP Assumptions Into Our Forecasts

  • Given the surge in demand, we believe higher ASPs are on the cards for FY20F. For the healthcare segment, we now impute 10%/15% q-o-q price hikes into our assumptions for 2Q/3Q20F respectively. Riverstone remains committed to building long-term business relationships with its regular customers, and is raising prices on a more gradual basis on that front.
  • Meanwhile, it is allocating up to 10% of total capacity (mainly from new production lines) for spot orders, which have substantially higher ASPs (about 2x of recurring orders). We also believe there is room for higher ASPs (+8% q-o-q in 3Q20F) in the cleanroom segment, as the demand for this segment also remains robust YTD.

Stronger Sequential Earnings Ahead; FY20F a Bumper Year

  • Going into 2Q20F, we expect Riverstone to record sequentially stronger net profit of RM72m (+54% q-o-q, +102% y-o-y).
  • Stars are aligned for Riverstone in FY20F, with
    1. stronger sales volume,
    2. higher ASPs, and
    3. higher margins (due to lower raw material prices).
  • We now expect Riverstone to achieve a record FY20F net profit of RM314m (+141% y-o-y).

Reiterate ADD, With Higher Target Price of S$3.12

  • We raise our FY20-22F EPS by 5.7%-24.9% mainly to account for higher ASPs. Our Target Price is lifted to S$3.12, still pegged to 22.7x CY21F P/E (+2 s.d. from its 5-year mean) to reflect the current favourable operating environment for glove players.
  • We continue to like Riverstone for its attractive valuations (33% discount to Malaysia-listed glove sector average CY21F P/E of 24.7x).
  • Potential re-rating catalysts include further price hikes.
  • Key risks include weaker cleanroom glove demand.
Read also recent SGX market update:Top Glove, Riverstone & UG Healthcare Report Quarterly Earnings
Source: CGS-CIMB Research - 11 Jun 2020

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