Brokers' take: RHB upgrades Riverstone to 'neutral', calls current valuation fair

RHB on Thursday (Feb 24) upgraded Riverstone to "neutral" from "sell" and raised its target price to S$0.74 from S$0.65, while noting that the glove maker's current valuation is fair.

Riverstone is trading at 16 times the brokerage's estimates for FY2023 earnings, in line with its historical average and pre-pandemic 5-year mean, RHB said in a research note.

RHB's new target price implies a potential downside of 6.3 per cent from the glove maker's trading price of S$0.79 as at 11.51 am on Thursday. Its shares were down 4.2 per cent or S$0.035 at the time.

Meanwhile, DBS Group Research has lowered its target price on the counter to S$0.97 from S$1.20, after cutting its FY2022 and FY2023 earnings forecast by 31 per cent and 16 per cent respectively. DBS's new target price implies a potential upside of 22.8 per cent.

The DBS research team lowered its target price to account for the delay in Riverstone's capacity expansion plans, as well as expectations for lower average selling prices (ASPs) for the group's healthcare glove segment.

Both RHB and DBS expect the ASPs for Riverstone's healthcare glove segment to see a steep drop, but its exposure to the cleanroom segment should cushion part of the impact.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

"That said, we still expect weaker quarters ahead, as the healthcare division still encompasses the majority of production volumes," said RHB.

The ASP for healthcare gloves eased further to US$25-30 in Q1 2022 from US$37-38 per 1,000 pieces in Q4 2021.

DBS is projecting healthcare glove ASPs to stabilise at around the US$25 level and has lowered its ASP projection for FY2022 to US$24 per 1,000 pieces from US$32 previously. For FY2023F, the research team is projecting a slightly lower ASP of US$22 amid higher capacity.

Meanwhile, DBS expects demand for cleanroom gloves to remain strong on the back of keen demand from the technology, pharmaceutical and manufacturing industries. It projects prices to remain firm at slightly above the US$100 level.