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

RIVERSTONE HOLDINGS LIMITED (SGX:AP4)

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.

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.

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.

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.

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.

We lower our 2022-24 net earnings forecast for Riverstone by 2.6%/2.3%/1.3% respectively, after accounting opine that there are no strong catalysts to justify Riverstone trading at higher valuations.
See
Catalysts:
- Emergence of a deadly COVID-19 variant.
- Better-than-expected ASP hike and operating leverage.

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

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