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Results Analysis: Expecting bumper final dividends

  • 9-month results above expectation 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 
  • Maintain BUY with lower TP of S$1.20; expect bumper dividend

ASP for HC near bottom; CR stable. Demand for high-end cleanroom (CR) gloves and healthcare (HC) gloves remains strong. Although the average selling price (ASP) for HC plunged by >50% in 3Q21, it is now close to the bottom while CR prices remain firm. We expect the HC ASP to hover around the US$30 range per 1,000 pieces in 2022, slightly lower than the US$35-40 level for the October to December period. For the CR segment, the ASP is expected to remain firm at around the US$100 level. Going forward, the CR segment is expected to provide earnings resiliency and sustainable growth for the group.

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Expect bumper final dividend of 39 sen.  Similar to last year, the group expects to pay a special dividend on the back of the super normal profits. Based on our projections and dividend payout ratio of 50% (same as FY20), DPS for FY21 works out to 49 sen (including interim DPS of 10 sen), implying an attractive final dividend of 39 sen or >16% yield.

Valuation:

Maintain BUY with lower TP S$1.20. We have raised FY21F earnings by 9% on a slightly higher ASP and margins. For FY22F, the 9% cut in earnings is mainly to account for the one-off prosperity tax. Our TP is lowered to S$1.20 (previously S$1.28), still pegged to its four-year average PE of c.10x, on blended FY22F and FY23F earnings to reflect a more normalised environment. Maintain BUY.

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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 CR gloves, given its dominant position in the industry. 

Key Risks to Our View:

A steeper-than-expected reduction in the ASP and/or oversupply of gloves.