• Keep BUY, with unchanged DCF-derived SGD1.05 TP, 17% upside. Riverstone’s 2Q24 core earnings grew 59% YoY to MYR72.4m, bringing its 1H24 numbers to account for 47% of both ours and Street’s expectations. We deem the results to be in line, predicated by solid demand recovery for both healthcare and cleanroom gloves. Moving forward, we continue to like the company for its unique exposure in the cleanroom segment, above- industry margin profile, and consistent dividend payouts.

• Results overview. Rston’s 1H24 core earnings came in in line with our expectations underpinned by higher ASP and robust demand recovery for cleanroom and healthcare gloves. Gross margin expanded 11.3ppt YoY on the back of a better product mix (ie higher sales from cleanroom and healthcare specialty gloves). On a sequential basis, revenue contracted 1% QoQ due to port congestion arising from the Red Sea disruption. Gross margin improved 1.1ppt QoQ – likely attributed to the easing of fuel prices. Core profit margin edged up higher by 3.6ppt QoQ to 29.3%. The group declared a second interim dividend of 4 sen (MYR), representing a payout ratio of 82%.

• Outlook. The onset of the recovery in global semiconductor sales continues to bode well for the outlook for the demand of cleanroom gloves. This is after the SIA (Semiconductor Industry Association) reported global semiconductor sales of USD49.1bn during May (+19.3% YoY, +4.1% MoM). The continuation of robust semiconductor sales indicates that the global semiconductor industry is experiencing a secular recovery trend fuelled by a series of tech companies’ regional expansion, growth in demand of chips for AI computing, and the increasing adoption of cleanroom gloves beyond the traditional life- science industry. Under its healthcare segment, we expect Rston to move to diversify its product offerings towards specialty gloves to yield better margin, given that specialty products typically command higher ASPs than healthcare examination gloves. As the healthcare glove industry demand-supply inches towards equilibrium, we expect this to have a positive spillover effect for Rston following a period of consolidation.

• Earnings adjustment. We make no change to our earnings estimate pending post-result briefing today.

• Maintain NEUTRAL. Our DCF-derived-TP implies 16.7x FY24F P/E, which is 0.4SD above its pre-COVID-19 5-year historical mean of 14.8x. Our TP incorporates 0% ESG premium as Rston’s ESG score is on par with the country median.

• Key risks: Lower-than-expected sales volume, weaker-than-expected USD against MYR, and higher-than-expected raw material prices.

Source: RHB Research - 7 Aug 2024