Brokers’ take: CSG-CIMB downgrades Riverstone Holdings on weakening demand

Published Mon, Aug 15, 2022 · 12:10 PM

CGS-CIMB has downgraded Riverstone Holdings rating to “hold” from “add” with a lower target  price of S$0.80 down from S$1.10 previously, as it believes weakening glove demand will lead to lower plant utilisation in H2 2022. 

“While healthcare glove average selling prices (ASPs) showed signs of bottoming in May, industry ASPs saw a turn for the worse in 3Q22F owing to sluggish demand and rising capacity in the global glove sector, which saw intensifying price competition led by Chinese peers,” said CGS-CIMB analyst Ong Khang Chuen. He adds that Riverstone continues to work with distributors on customised products that offer higher ASPs and margins but cautions that ASPs are likely to fall further to US$25 (per 1k pieces) in Q3 2022.   Riverstone’s Q2 2022 net profit fell to RM100 million from Covid-highs, but remained relatively resilient compared to larger scale Malaysian-listed peers (Hartalega: RM88 million; Kossan: RM49 million) given its differentiated focus on higher-margin cleanroom gloves. Ong views the results as being in line with expectations, signaling management’s intention to return excess cash to shareholders. “We believe downside is cushioned by potentially higher dividends. Riverstone has a net cash position of RM1.2 billion as of end 1H 2022. Assuming RM350 million is earmarked for expansion over the next 3 years, we think up to RM850 million cash can be paid out, translating to 18 sen DPS. Upside risks include higher dividend payout and continued resilience in cleanroom demand; downside risks include further downtrend in healthcare ASPs,” said Ong. 

Shares of Riverstone last traded at S$0.72, 4.6 per cent or S$0.035 lower as at 11.25 am on Monday (Aug 15).



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