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Investment Thesis: Cleanroom glove to provide sustainable growth

Key Arguments:

  • Leader in high-end CR gloves sets it apart from peers on the back of the significant drop in the ASP for HC. With c.50% market share in the high-end cleanroom (CR) gloves segment, Riverstone stands out among its peers with the recent plunge in the ASP for the healthcare (HC) gloves while the prices for the CR segment remain relatively stable. From FY22F onwards, earnings contribution from the CR segment is expected to normalise to >50% of total earnings, from c.20% in 1H21. Pre-COVID, earnings from the CR segment accounted for c.70% of total earnings.
  • CR gloves to ensure earnings resiliency and sustainable growth over the long term. Riverstone was able to secure new customers in the CR space, as its competitors focused on the higher-margin HC gloves due to strong demand and tight supply. Going forward, we expect a higher contribution from the CR segment, where the ASP is more stable due to the tight supply and also higher barriers of entry.
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Valuation

We have cut FY21F/22F/23F earnings by 16%/22%/10% mainly to account for our lower ASP assumptions. Our TP is lowered to S$1.28, from S$1.77 previously, still pegged to its four-year average PE of 10x on blended FY22F and FY23F earnings to reflect a more normalised environment.  
 

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Where we differ:

We remain positive that Riverstone would be able to increase its market share from new and existing players for cleanroom gloves, given its dominant position in the industry.

Key risks to our view:

A steeper-than-expected reduction in ASP; oversupply of gloves.