SINGAPORE (Jul 9): Against the backdrop of the Covid-19 pandemic, cleanroom product manufacturer Riverstone Holdings is seeing “outperformance” that is expected to continue into the next quarter.
UOB Kay Hian and CGS-CIMB are maintaining “buy” and “add” on the company respectively, with the latter lifting the target price to $3.90 from $3.12.
The Singapore-listed company will release its 2QFY20 results by early-August. CGS-CIMB analyst Ong Khang Chuen projects a strong net profit of RM72 million ($23.51 million), at 54% q-o-q and 102% y-o-y.
Citing a call with Riverstone Holding’s CEO, UOB Kay Hian analysts Llelleythan Tan and John Cheong expect demand for healthcare gloves to remain robust beyond 2Q2020; a rise in average selling price (ASP); and ample capacity expansion, with the company’s first production line commencing production this month.
“As more countries start to experience [a] second wave of Covid-19 infections, demand for healthcare gloves continues to increase and customers have offered to pay higher prices to secure inventories,” said UOB Kay Hian in a Jul 7 report.
ASP for healthcare gloves are expected to increase by around 10% every month until August then maintaining in September, though CGS-CIMB expects growth in July to taper in the subsequent month, at 20% and 8% m-o-m.
Overall, the “favourable” ASP environment is expected to continue up to 1H2021, “based on customers’ strong indicative demand”, notes UOB Kay Hian.
Riverstone Holdings’ ASP for healthcare gloves have also been given a surprise boost by a new tier pricing for Riverstone’s regular healthcare glove customers (RC), notes UOB Kay Hian.
This month, Riverstone introduced a new tier pricing system for its regular customers. Instead of paying US$25 per thousand pieces for 100 million pieces, regular customers pay US$25 per thousand pieces for the first 40 million pieces.
These customers then pay a mark-up of US$27 per thousand pieces for the subsequent 40 million pieces, and spot prices between US$60-70 per thousand pieces for the remainder of their order.
This new tier system was proposed by regular customers and not Riverstone Holdings, reports UOB Kay Hian.
“As most of Riverstone’s regular customers are glove distributors with hospitals as end-clients, we believe this shows the growing unmet demand for healthcare gloves if regular customers are willing to pay spot prices to ensure they have stock,” say Tan and Cheong.
The company is also making strides on the supply side. After a pause in its capacity expansion in 2Q2020 owing to Malaysia’s movement control order, Riverstone Holdings is expected to commission new production lines gradually starting July, notes CGS-CIMB in a Jul 8 report.
This month, the company will see a single line start production, and a double line will be commissioned every month from August to December this year, reports UOB Kay Hian.
“We estimate [Riverstone Holdings’] total annual production capacity will grow 8% in 2H2020F to 10.6 billion pieces. Additional capacity from the new lines would be sold at spot prices, in our view,” says Ong.
As at 4.05pm, shares in Riverstone Holdings are trading 0.61% or 2 cents lower, at $3.28.
