Despite robust demand for healthcare gloves in the near- to medium-term, analysts are trimming their target prices for Riverstone Holdings on the gradual decline in average selling price (ASP).
DBS Group Research analyst Ling Lee Keng notes Riverstone Holdings’ strong 1HFY2021 results, driven by the surge in demand on the back of global shortages.
In an Aug 10 note, Ling is maintaining “buy” with a lowered target price of $1.77 from $1.86 previously, which represents a 39% upside.
Glovemaker Riverstone Holdings reported earnings of RM1.04 billion for 1HFY2021, up 656.8% y-o-y. Revenue in the same period was up 222.2% y-o-y to RM2 billion, with demand for gloves shooting up amid the pandemic.
The company plans to reward shareholders with an interim dividend of 10 sen, versus four sen paid this time last year.
See: Riverstone reports 656.8% earnings jump
That said, Ling notes the easing in ASP, on the back of the increasing supply coming onstream.
However, the ASP for cleanroom (CR) gloves are likely to be more stable due to the tight supply and also higher barriers of entry, says Ling.
CR gloves will ensure earnings resiliency and sustainable growth over the long term, writes Ling. “Riverstone was able to secure new customers in the CR space, as its competitors focused on the higher-margin healthcare gloves due to strong demand and tight supply. Already the market leader in the high-end CR glove space, Riverstone is poised to further entrench its leadership position.”
“We remain positive that Riverstone would be able to increase its market share from new and existing players for CR gloves, given its dominant position in the industry.”
Meanwhile, CGS-CIMB Research analyst Ong Khang Chuen is maintaining “add” on Riverstone Holdings with a lowered target price of $1.40, a sharp drop from $1.80 previously. The new target price represents an upside of 15.7%.
Demand for CR gloves remain robust, riding on growth in the tech manufacturing and pharmaceutical industries, writes Ong.
“We expect cleanroom ASP to remain flattish on a q-o-q basis for 3QFY2021F. Riverstone Holdings continues to prioritise CR glove production under current capacity constraints — we expect this to bear fruit in the coming years as the segment typically contributes higher ASPs and gross processing margin (GPMs), and pricing is more sticky as Riverstone Holdings deals directly with end-customers,” says Ong.
Riverstone Holdings plans to increase its volume mix from the CR segment to 25% within the next five years, up from 22% in 1H2021. “We believe this could lift the sustainable earnings profile of the company,” writes Ong.
“We expect sequentially weaker results for the segment going forward, due to lower production volume (ongoing capacity constraints), and lower ASP,” he writes.
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As at 3.05pm, shares in Riverstone Holdings are trading 1 cent lower, or 0.78% down, at $1.26.
Photo: Bloomberg
