Riverstone - CGS-CIMB Research 2022-08-12: Intensifying Industry Headwinds

Riverstone - Intensifying Industry Headwinds

  • Riverstone (SGX:AP4)’s 2Q22 net profit fell to RM100m (-8% q-o-q, -81% y-o-y) from the COVID-highs, but remained relatively resilient compared to larger scale Malaysian-listed peers given its differentiated focus on higher-margin cleanroom gloves. We deem the set of results as in line with expectations, with 1H22 net profit coming in at 62% and 60% of ours and Bloomberg consensus’ FY22F respectively.
  • Riverstone declared an interim dividend of RM0.10 (flat y-o-y). This translates to a dividend payout ratio of 71%, higher than its typical 50% dividend payout ratio, signaling management’s intention to return excess cash to shareholders.
  • Cleanroom ASPs are likely to remain resilient at ~US$100 (per 1k pieces), though Riverstone expects demand to be slightly dampened in 3Q22F by the ongoing disruptions in China.
  • While healthcare glove ASPs showed signs of bottoming in May (Riverstone managed to raise prices slightly due to higher operating costs), industry ASPs saw a turn for the worse in 3Q22F owing to sluggish demand and rising capacity in the global glove sector, which led to intensifying price competition led by Chinese peers. ASPs are likely to fall further to US$25 (per 1k pieces) in 3Q22F (2Q22: ~US$29). The weaker glove demand is also likely to lead to lower plant utilisation in 2H22F; hence Riverstone’s decision to temporarily delay further capacity expansion.
  • In view of weaker prospects for the healthcare glove industry, we downgrade Riverstone to HOLD. We cut our FY22-24F EPS forecast by 5.1-30.9% to account for lower healthcare ASPs and margins. Our target price is lowered to S$0.80, still pegged to 17x CY23F P/E (in line with Riverstone’s 5-year historical mean).
  • We believe downside of Riverstone's share price is cushioned by potentially higher dividends. Riverstone has a net cash position of RM1.2bn as of end-1H22.

Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.

ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2022-08-12
SGX Stock Analyst Report HOLD DOWNGRADE ADD 0.80 DOWN 1.100

Previous report by CGS-CIMB:
2022-02-23 Riverstone - Bumper Dividends

Check out the most recent target prices at Riverstone Target Prices. Listing of analyst research reports at Riverstone Analyst Report.

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Riverstone Share Price History,
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Riverstone Dividends & Corp Actions,
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