9-month results above expectations as demand remains strong  TP$1.28

Results First Take: 9-month results above expectations as demand remains strong

  • 9-month results beat expectations as demand remains strong  
  • Expect firmer cleanroom gloves price vs healthcare  
  • New products and new markets for income diversification; cleanroom segment to provide earnings resiliency and sustainable growth 
  • We currently have a BUY call with TP of S$1.28; will review earnings estimate post briefing

9-month results above expectations. Riverstone reported 3Q21 net profit of RM266.4m (+49% y-o-y, -49% q-o-q) on 35% y-o-y increase (-34% q-o-q) in revenue. 3Q21 gross margin came in at 54.7%, vs 69.6% in 2Q21. For the 9-month period, net profit of RM1,307.1m accounts for 97% of our full-year projections, above expectations. 

Demand for healthcare gloves still firm but ASP weaker. Demand for the Group’s healthcare (HC) gloves has continued to grow despite the pandemic moving into the endemic phase in many parts of the world. Average selling price (ASP), however, has begun to normalise progressively in 3Q21 as major distributors have taken a wait-and-see approach for glove prices to stabilise.

Strong demand for cleanroom gloves. Demand for the Group’s high-tech cleanroom (CR) gloves remains robust, driven by a sustained growth in orders from the Group’s long-term customers within the electronics, semiconductors, batteries, sensors and lenses manufacturers.

Expect firmer CR price vs HC. The ASP for CR gloves is still relatively stable, hovering around the US$100-US$120 range since the beginning of this year. This could be due to the tight supply and also higher barriers of entry. Furthermore, during the pandemic, some of Riverstone’s competitors in the CR space have switched to the production of HC gloves due to the strong surge in the ASP for HC. For the HC gloves, , the ASP has plunged to about US$40 per 1,000 pieces, from about US$90-100 during the April to June 2021 period. We expect prices to stabilise at around the US$30 range. 


Delay in capacity expansion plans. The Group faced temporary delays for the Phase 7 expansion plans, as a result of the disruption to construction and other related works caused by the Movement Control Order (MCO) in Malaysia. Hence the additional 1.5 billion pieces of new production capacity will only come online by 1Q22 instead of by end of the year. The Group is preparing for Phase 8 expansion plans, which is slated to add up to 1.5 billion pieces of gloves to bring the total annual production capacity to c.13.5 billion by FY2022/23.

Significant exposure to the cleanroom space a key differentiating factor among peers, and to provide earnings resiliency for sustainable growth. With the significant drop in the ASP for HC but stable CR price, Riverstone stands out among its peers as the market leader in the high-end cleanroom space. CR gloves currently accounts for c.25% in terms of production volume and about 40% out of the total revenue and >50% in terms of earnings. Earnings from the CR segment accounted for c.70% of total earnings pre-COVID. the CR segment is expected to provide earnings resiliency for sustainable growth.

New products and new markets for income diversification. For longer term sustainable growth, the Group continues to focus on developing new and innovating products to diversify its income streams by capturing new market segments, namely in food processing, pharmaceutical as well as surgical glove segments.  

We will review our earnings estimates post results briefing in the morning. We currently have a BUY call on Riverstone, with TP of S$1.28.