UG HEALTHCARE CORPORATIONLTD (SGX:8K7)
RIVERSTONE HOLDINGS LIMITED (SGX:AP4)
Glove Makers 4QCY20 Earnings Preview - Riverstone & UG Healthcare ~ Another Strong Showing
- We forecast UG Healthcare and Riverstone to report another quarter of record earnings in 4QCY20, with net profits jumping 54x/8.5x y-o-y, respectively.
- Fundamentals of glovemakers remain strong as ASP uptrend continues, which could support stronger earnings in quarters ahead.
- We see value emerging post the removal of share price overhang (lifting of Bursa’s short-selling restriction). Maintain ADD on UG Healthcare and Riverstone.
Glove makers' fundamentals intact with ASP remaining firmly on an uptrend
- We believe fundamentals of glovemakers remain strong in FY21F, as resurgence in COVID-19 worldwide underpin firm demand for gloves. The Malaysian Rubber Glove Manufacturers Association (MARGMA) estimates that the global glove shortage situation will persist in 2021F, due to increased usage in the medical field as well as in non-medical industries (retail, F&B, etc.).
- Based on our channel checks, glove ASPs remain firmly on an uptrend, which could support strong earnings in quarters ahead.
UG Healthcare 2QFY21 net profit forecast: S$30m (+31% q-o-q, 54-fold jump y-o-y)
- We forecast UG Healthcare (SGX:8K7) to report net profit of S$30m (+31% q-o-q, 54-fold increase y-o-y) in 2QFY21 (Oct 2020 to Dec 2020) .
- UG Healthcare said its distribution companies’ inventory levels remain low, and have to be managed on a very tight schedule based on just-in-time delivery. We estimate that UG Healthcare’s ASP rose by 10-20% m-o-m in Dec, and will further increase by 5-10% m-o-m in Jan and Feb 2021.
- We believe further ASP uptrend can be supported by the narrowing price gap for gloves between developing and developed countries.
- See UG Healthcare Share Price; UG Healthcare Target Price; UG Healthcare Analyst Reports; UG Healthcare Dividend History; UG Healthcare Announcements; UG Healthcare Latest News.
Riverstone 4Q20 net profit forecast: RM275m (+54% q-o-q, +757% y-o-y)
- We forecast Riverstone (SGX:AP4) to report net profit of RM275m (+54% q-o-q, +757% y-o-y) in 4Q20. We estimate its healthcare gloves’ ASP grew 10-15% m-o-m in Dec 2020/ Jan 2021, and could likely rise by another 5-10% in Feb to ~US$100 per thousand pieces.
- Cleanroom gloves’ ASP were also raised by 10-15% in Jan, and currently stand at ~US$110 per thousand pieces. We believe margin expansion trend should continue in coming quarters, as ASP hikes continue to outpace raw material cost increases.
- See Riverstone Share Price; Riverstone Target Price; Riverstone Analyst Reports; Riverstone Dividend History; Riverstone Announcements; Riverstone Latest News.
Overhang removed, value emerging
- Glovemakers have seen share price correction of ~30% since Nov due to
- vaccine development newsflow, and subsequently
- share price overhang from the impending lifting of Bursa Malaysia’s short-selling suspension on 1 Jan 2021.
- See Riverstone's share price; UG Healthcare's share price.
- Currently, UG Healthcare and Riverstone are trading at 5.2x and 9.4x CY22F, respectively, which we think more than prices in earnings normalisation post COVID-19.
- We reiterate our ADD calls on both UG Healthcare and Riverstone, and see upcoming results announcements in Feb as a near-term share price catalyst.
- UG Healthcare remains our preferred pick given its relatively cheaper valuation and our expectations of higher normalised profits, backed by a 59% y-o-y manufacturing capacity expansion expected in CY21F.
- See also report: Top Glove - CGS-CIMB Research 2021-01-11: Gloves ASP To Still Rise In Jan & Feb 21.
- CGS-CIMB's target price for UG Healthcare and Riverstone represent upside of 152% and 77% to the current UG Healthcare share price and Riverstone share price as of 12-Jan respectively. See our compilation of :
ONG Khang Chuen CFA
CGS-CIMB Research
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https://www.cgs-cimb.com
2021-01-12
SGX Stock
Analyst Report
1.700
SAME
1.700
2.500
SAME
2.500
