SINGAPORE (Feb 24): Maybank Kim Eng is maintaining its “hold” call on Riverstone Holdings given the lacklustre outlook from an oversupply situation.
According to a Friday report, analyst John Cheong says management has warned that 1H17 could be challenging due to the 50% q-o-q spike in the synthetic rubber price in 1Q17 resulting from maintenance shutdowns at several factories. In addition, intensified competition from more supply coming onstream could limit the manufacturer’s ability to fully pass on the cost increase.
“We cut EPS by 7-12% after lowering our gross margin assumption to reflect the more challenging and competitive environment,” says Cheong.
However, there could be several bright spots. These include favourable USD/MYR whhich could offset some cost and competitive pressures; future penetration of new markets like the US and Japan as well as the high barrier of entry for cleanroom gloves which should help Riverstone maintain stable market share and attractive profits.
Meanwhile, the construction of Rievrstone’s phase four capacity should start in 2H17. ‘We think that its differentiated products can fetch decent demand, at the expense of lower gross margin, amid this oversupply period,” says Cheong, “Management is confident that it can fill up the new capacity based on currently projected customer demand.”
Shares of Riverstone are up 1 cent at 92 cents.
