Riverstone - UOB Kay Hian 2022-05-12: 1Q22 Positive Signs That The Worst Is Over


Riverstone - 1Q22 Positive Signs That The Worst Is Over

  • Riverstone (SGX:AP4) released its 1Q22 update, showing sharp y-o-y falls in revenue and net profit, largely in line with expectations.
  • Healthcare glove ASPs appear to be reaching a plateau which could help support earnings as raw material costs start moderating.
  • Cleanroom gloves, a key driver for future earnings growth, saw 1Q22 ASPs and sales volumes remaining steady from strong secular demand.

Riverstone's 1Q22 Results

  • Sharp y-o-y falls as ASPs normalise. For 1Q22, Riverstone reported revenue and net profit of RM402.3m (-61.0% y-o-y, -1.9% q-o-q) and RM108.7m (-79.2% y-o-y, - 1.8% q-o-q) respectively, forming 22.1% and 25.2% of our full-year 2022 forecasts and largely in line with our expectations. The sharp y-o-y fall in revenue is largely due to the normalisation of healthcare gloves ASPs from pandemic highs.
  • Riverstone's 1Q22 gross profit fell 78.2% y-o-y as margins contracted due to shrinking ASPs, forming 24.9% of our full-year forecasts and in line with expectations. However, 1Q22 gross margins improved q-o-q to 38.4ppt from 37.7ppt in 4Q21, driven by a drop in raw material costs for healthcare gloves and robust sales volume from the higher-margin cleanroom gloves segment.

Healthcare segment reaching a plateau.

  • On a q-o-q basis, 1Q22 revenue and net profit only softened 1.9% and 1.8% respectively. This is largely due to healthcare gloves sales volume increasing 21% q-o-q despite ASPs (around US$30/’000pcs in 1Q22) falling in the same quarter. Furthermore, raw material costs also softened from US$29/’000pcs to US$24/’000pcs in 1Q22, supporting gross margins. Healthcare gloves formed 80%/58%/40% of Riverstone’s 1Q22 overall sales volume/revenue/gross profit respectively.
  • Moving forward, management has noted that demand, ASPs and raw material costs have stabilised going into 2Q22.

Cleanroom gloves steady and resilient.

  • For the cleanroom glove segment, ASPs and sales volumes were similar as of the preceding quarter, backed by strong global semiconductor and electronics demand. Current ASPs are at US$100-110/’000pcs, holding steady as greater demand for higher specifications of customisable cleanroom gloves has led to Riverstone holding ASPs or increasing them slightly. Also, pharmaceutical customers now contribute 15% of cleanroom gloves revenue, a potential new growth driver that Riverstone is planning to increase market share in.
  • As of 1Q22, Riverstone commands roughly 40% of global market share within its respective product classifications. Management expects or the cleanroom glove segment to increase slightly moving forward due to resilient global demand.

Phase 7 capacity expansion close to completion; phase 8 about to start.

  • New capacity of 1.5b pcs from phase 71.5bpcs/year to Riverstone’s total capacity by end-23. Current utilisation rates are at 80% but are expected to increase as Malaysia has reopened its international borders, allowing workers to return back to Malaysia.

Riverstone - Earnings forecast revision & recommendation

Llelleythan Tan UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2022-05-12
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