Riverstone - RHB Invest 2021-11-10: Weaker Quarters Ahead; Stay NEUTRAL


Riverstone - Weaker Quarters Ahead; Stay NEUTRAL

  • Maintain NEUTRAL and target price of S$0.95, 22% upside with a ~3% FY22F yield.
  • Riverstone (SGX:AP4)’s 9M21 earnings are in line with our estimate, as ASPs moderated further due to normalising demand. ASP erosion has started to stabilise, but the equilibrium level remains muddled and earnings should continue to normalise in the quarters ahead.
  • We make no changes to our forecasts, pending further clarity from its analyst briefing tomorrow.

Riverstone's 9M21 core net profit is broadly within expectations, at 91% of our and Street full-year projections.

  • Riverstone's 3Q21 net profit weakened q-o-q on the back of normalising demand, as major distributors have practiced minimal purchasing to avoid holding high-cost inventories. Additionally, we believe sales volumes were likely impacted by the imposition of MCO and National Recovery Plan restrictions.

Cleanroom gloves segment to lead earnings contribution from FY22F onwards.

  • The downtrend Riverstone’s healthcare glove ASP may partly be cushioned by its higher-margin cleanroom segment, which continues to enjoy demand arising from the growing tech manufacturing and pharmaceutical sectors.
  • Additionally, the barriers of entry for such a niche market are higher than that for healthcare gloves, given the specific technological requirements.

FY22F numbers to be impacted by one-off windfall tax.

  • Given Riverstone’s forecasted earnings base of > MYR100m, the company is expected to be hit by the one-off windfall tax charge next year.
  • While Riverstone has yet to give an official guidance on the estimated impact, as we await further details from tomorrow’s result briefing, we understand that four out of its six manufacturing subsidiaries are based in Malaysia. Our preliminary calculation estimates a 7% impact to its FY22F earnings.

Phase 7 expansion delayed to 1Q22.

  • Riverstone now expects Phase 7 of the group’s expansion plan to only start commissioning in 1Q21, due to the disruption to construction works during the MCO period. Phase 7 will add 1.5bn pieces in new production capacity.
  • Management further cautioned that there could be a delay in its Phase 8 expansion plan (with 1.5bn pieces in additional capacity). Phase 8 is slated to commence by FY22F or FY23F (vs FY22F previously). We believe glovemakers may decide to scale back on their expansion plans further, to prevent the risk of oversupply and sub-optimal utilisation rates.

No change to our forecast

Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2021-11-10
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 0.95 SAME 0.95