SINGAPORE (Aug 20): CGS-CIMB is maintaining its “add” call on Malaysia-based glove manufacturer, Riverstone Holdings, with a target price of $1.30.
This came on the back of the research house hosting a non-deal roadshow for the group in Kuala Lumpur, which saw investors displaying a keen interest in the group.
In a Friday report, analyst Colin Tan says, “We stay positive on its earnings growth outlook as Riverstone is on track to raise annual production capacity by 18% to 9.0 billion gloves by end-FY18F and subsequently, to 10.4 billion by end-FY19F.”
Meanwhile, utilisation remains at optimal 90% and is likely to be sustained with the capacity expansion, prompted by huge order backlog and robust demand growth outlook for its cleanroom and healthcare gloves.
The group believes that it currently has about 55% of the global market share for customised cleanroom gloves.
This segment represents about 20% of the group’s volume output in 2Q18, but contributed over half of its net profit as it is able to command higher margins. Its key markets are Asia Pacific countries, where RSTON sells directly to customers that mainly deal with smartphone lenses, car sensors and batteries.
The group’s healthcare gloves saw a 10% y-o-y gain in shipment volume and accounted for about 80% of its total glove output in 2Q18.
The management is optimistic that the strong demand for its healthcare gloves would be sustained in light of continued growth in global glove demand and rising customer trust in quality of its gloves.
“We view Riverstone’s current 14.3x FY19F P/E as undemanding, representing over 30% discount to its Malaysian peers’ average (ex-Hartalega) of 20.5x. Given the accelerated core EPS growth of 13.1-16.5% in FY18-19F (based on our estimates) on stabilising margins and capacity expansion, we think Riverstone is relatively cheap.” says Tan.
As at 11.00am, shares in Riverstone are trading 1 cent lower at $1.10 or 3.3 times FY18 book with a dividend yield of 2.4%
