SINGAPORE (June 12): The strong global demand for gloves makes Riverstone a hot stock, notes CGS-CIMB analyst Ong Khang Chuen.
“We continue to like Riverstone for its attractive valuations (33% discount to Malaysia-listed glove sector average CY21F P/E of 24.7x),” he says in a June 11 note.
“Our recent channel checks reveal that Riverstone continues to see strong demand for gloves, both from its key existing customers as well as new buyers. We estimate that its order visibility for healthcare gloves has extended up to end 1QCY21, from end CY20 previously,” he elaborates.
The brokerage is hence maintaining its “buy” or “add” call on Riverstone at a revised target price of $3.12. This is up 62 cents or 24.8% from his previous $2.50 call.
Ong believes the higher target price will give the counter a 38.7% upside from its $2.25 close on Thursday.
Aside from a strong order book, his optimism comes from Riverstone’s ability to command a higher average selling price across its segments. For instance, prices of the healthcare segment are expected to increase by 10% – 15% between 2Q20 and 3Q20F. Similarly, robust demand for its cleanroom gloves is slated to increase prices by 8% q-o-q.
Meanwhile, Riverstone is now allocating up to 10% of its total capacity – mainly from new production lines – for spot orders. The average selling price of such orders is over double that of the other segments.
Collectively, Ong expects these factors to increase Riverstone’s profits by 102% y-o-y to RM72 million ($23.5 million) in 2Q20F ending June 30.
“Stars are aligned for Riverstone in FY20F, with 1) stronger sales volume, 2) higher ASPs, and 3) higher margins (due to lower raw material prices),” he asserts.
For the full year, Ong is looking at a 141% y-o-y increase in profits to RM314 million.
As at 11.23am, shares of Riverstone were up 5 cents or 2.22% to $2.30.
