Riverstone - UOB Kay Hian 2021-11-11: 3Q21 Results In Line But Expect A Sharp Moderation Going Forward

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RIVERSTONE HOLDINGS LIMITED (SGX:AP4)

Riverstone - 3Q21 Results In Line But Expect A Sharp Moderation Going Forward

• For 3Q21, Riverstone’s net profit of RM266m (+49% y-o-y/-48.5% q-o-q) was in line with our estimate, forming 92% of our estimate. However, ASPs for healthcare gloves declined significantly from 2Q21 onwards due to an ongoing supply-demand imbalance.
• We reduce our 2022 and 2023 earnings forecasts for Riverstone by 18% and 8% respectively. Maintain HOLD with a lower PE-based target price.

Strong y-o-y beat for Riverstone in 3Q21.

• Riverstone (SGX:AP4) reported strong 3Q21 results as both revenue (+35.3% y-o-y) and net profit (+49.2% y-o-y) grew from the continued demand for both healthcare and cleanroom gloves. 9M21 net profit formed 92% of our 2021 forecasts and gross profit rose by 42% y-o-y as ASPs remained elevated from pre-pandemic levels.
• However, on a q-o-q basis, the decline in healthcare ASPs has taken its toll as revenue (-34%), gross profit (-48%) and net profit (-48.5%) dropped sharply. This was made worse by Malaysia’s Movement Control Order (MCO) in 3Q21 which caused manpower resources and utilisation rates to drop.
• Looking forward, as demand for healthcare gloves start to moderate, we reckon that Riverstone’s super earnings cycle has started.

Reversion of healthcare gloves’ ASPs underway.

• ASPs for healthcare gloves have declined in 3Q21 due to unfavourable declining by 56% y-o-y in 2022.

Cleanroom gloves’ ASPs remain robust.

• Demand from long-term tech (semicons, electronics) customers gloves to increase approximately 55% y-o-y in 2021 and remain unchanged in 2022.

Riverstone has already set its sights on longer-term prospects to capture growth beyond the pandemic.

• This includes developing new underway and is expected to add another 1.5b pieces capacity by 2022/23, bringing the total capacity to 13.5b pieces.

We have cut our 2022/23 net profit forecasts for Riverstone

• We have cut our 2022/23 net profit forecasts for Riverstone by 18.4% and 7.8% respectively, after revising downwards that Riverstone’s supernormal earnings from the current glove upcycle have started to normalise and given dwindling demand for healthcare gloves and lower healthcare ASPs; there is significant downside risk to earnings.
• See
  • Riverstone's Share Price,
  • Riverstone's Target Price,
  • Riverstone's Analyst Reports,
  • Riverstone's Dividend History,
  • Riverstone's Announcements,
  • Riverstone's Latest News.
• Catalysts to share price:
  • Resurgence of COVID-19 infections.
  • Better-than-expected demand for cleanroom gloves.

Llelleythan Tan UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2021-11-11

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.68 DOWN 1.320