The second wave of Covid-19 infections occurring in several countries has increased the Average Selling Prices (ASPs) of healthcare and cleanroom gloves by around 15% month-on-month for November.
This translates to around US$60 ($81.55) per 1,000 pieces of gloves, and is higher than the 10% month-on-month average increase in ASPs between August and October.
This spells good news for glove and face mask manufacturer Riverstone Holdings, who has been having strong demand for its healthcare and cleanroom gloves due to Covid-19 and the tech boom.
The orderbook for the Malaysia-based company has stretched till 1H2021, so much so that its capacity “is almost fully utilised” and it’s not able to fulfill any new spot orders, observes UOB Kay Hian (UOBKH) analysts Llellyethan Tan and John Cheong
They add that manufacturers have offered to pay Riverstone spot prices ranging between US$90 and US$100 for 1,000 pieces of gloves.
Riverstone’s management expects ASPs to continue its strong momentum into April 2021, despite the 20% increase in the prices of raw materials from their lows in 1H2020.
Interestingly, the ASPs for cleanroom gloves posed the biggest surprise win this year – with a three-fold increase. A further hike is slated in November with prices reaching US$80 per 1,000 pieces, higher than the pre-Covid level of US$60 per 1,000 pieces.
The segment saw a 30% year-on-year increase in sales volumes 1H2020 and is slated to grow by 50% year-on-year in 2H2020 ending in December.
“As cleanroom gloves production requires intensive technology and high-level specifications, this has led to a shortage in supply, leading to additional cleanroom gloves demand from new and existing customers,” observe Tan and Cheong.
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A substantial portion of this demand is coming from the technology and manufacturing industries such as lenses, batteries and semiconductors.
Other customers could possibly be from Ansell and Kimberly Clark – its main competitors for the cleanroom gloves – who have shifted their production lines to healthcare gloves.
Going forward, Riverstone is optimistic that demand for the segment will stay robust going into 1Q2021, say Tan and Cheong.
To match the heightened demand, the company is set to complete Phase 6 of its capacity expansion by December. This will allow it to produce 1.5 billion additional pieces of gloves, bringing its total capacity to 10.5 billion pieces per year.
The company is also working on Phase 7 of its expansion and is slated to set up one double line every month between April and September 2021. This will bring its total capacity to 12 billion pieces by 4Q2021, thereby allowing the company to absorb more demand.
Against this backdrop, Tan and Cheong have are looking at Riverstone’s revenue coming in at 10.4% higher to RM1,854.1 million ($603 million) in 2020, and increasing further to RM2,620.9 million (+25.9%) in 2021 and RM2,030.4 million (+19.0%) in 2022.
“The significant increase to our forecasts is due to higher healthcare gloves ASPs, larger cleanroom sales volume and higher overall gross margin assumptions at 37.3% (+1.5ppt) and 41.6% (+5.1ppt) for 2020-21 respectively,” the analysts explain.
The duo have maintained their buy call at a slightly higher target price of $5.97. This is up 3 cents from their previous $6.00 target and is believed to give the counter a 61.4% upside from its $3.70 price on Oct 26.
Shares of Riverstone were up 4 cents or 1.11% to $3.63 as at 2.53pm.
