• Keep BUY, new SGD1.07 DCF TP (from SGD1.02), 19% upside, c.6% FY25F yield. Post results briefing, we are upbeat on Riverstone. Its growth prospects remain intact, premised on the recovery of global semiconductor sales and improving market dynamics within the healthcare glove industry. We still like the company for its unique exposure to the cleanroom segment, above-industry margin profile, and consistent dividend payout.

• Key operating metrics. To recap, RSTON’s cleanroom glove (CG)ASPs inched up to USD94/1,000 pieces from USD90/1000 pieces. Healthcare glove (HG) ASPs rose to USD28.50, up from USD26-27, on a favourable product mix. Moving forward, we expect CG to be flattish or see a mild increase as the bulk of the price has been locked in on a periodic basis. HG is expected to remain rangebound as well, due to the higher product mix towards the generic segment (driven by industry recovery trend and trade diversion). In terms of volumes, CG and HG grew 10% and 30% QoQ. Management is expecting the growth momentum for CG to continue in the coming quarters, underpinned by sustained orders from US customers, whileHG should also be supported by higher orders from US customers in view of the US import tariffs on China.

• Margins. The CG segment posted a slight GPM contraction to 56% from 60% in 3Q24, while HG GPM came in at 19% (from 23.5% in 2Q24). This brought group GPM to 34.7% (2Q24: 40.2%), mainly due to the spike in raw material prices and increase in staff costs. Moving forward, we expect margins to improve on the back of a stable cost outlook (acrylonitrile price: -2% QTD; natural gas tariff lowered by 1.5%) and improving operating efficiencies as plant utilisation rates pick up.

• Capacity expansion plans. Management plans to expand production capacity by another 1.5bn pieces (700m cleanroom; 800m healthcare) by 4Q24-1Q25. This will increase total production capacity to 9bn per year post expansion.

• Earnings adjustment. Post results briefing, we make no changes to our FY24F earnings but raise FY25F-26F earnings by 8-5%, taking into account a higher USD/MYR assumption of 4.30/4.20 from 4.00/4.10. RSTON intends to maintain its dividend payout of at least c.80% which should translate to an FY25F yield of 6%, based on yesterday’s closing price. Our new DCF-derived TP is SGD1.07, which implies an unchanged 17x FY25F P/E (+0.4SD from its pre-COVID-19 5-year historical mean of 14.8x). Our TP incorporates a 0% ESG premium/discount as RSTON’s ESG score is on par with the country median.

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

Source: RHB Securities Research - 13 Nov 2024