Growing contribution from stable cleanroom segment
- FY21 results broadly in line; net profit surged 119% y-o-y on higher volume and ASP
- Bumper dividend of 38 sen declared; dividend payout ratio of 50%, similar to FY20
- Demand for healthcare gloves improving but pricing pressures still persist; strong demand and stable ASP for cleanroom gloves
- Maintain BUY with lower TP of S$0.97 to reflect lower ASP assumption and delay in expansion plans
Investment Thesis:
ASP for HC nearing bottom; CR stable. The average selling price (ASP) for healthcare (HC) gloves eased further from about US$37-38 per 1,000 pieces in 4Q21 to about US$25-30 in 1Q22. Average ASP is expected to stabilise at around the US$25 level. We have lowered our ASP projection for FY22F to US$24 per 1,000 pieces from US$32. For FY23F, we are projecting a slightly lower ASP of US$22 as more capacity comes online. For the cleanroom (CR) segment, prices are expected to remain firm, at slightly above the US$100 level. Going forward, we expect a higher earnings contribution from the CR segment, which is expected to provide earnings resiliency and sustainable growth for the group.
Demand for CR strong; HC improving but supply is also increasing. Demand for CR remains strong, on the back of the keen demand from the technology, pharmaceutical and manufacturing industries such as for lenses, batteries, and semiconductors. Demand for HC has improved from 4Q21 as distributors resume their stock replenishment, as ASP is beginning to stabilise.
Valuation:
Maintain BUY with a lower TP of S$0.97. On the back of the earnings cut, our TP is reduced to S$0.97 (previously S$1.20). This is pegged to a 10x PE, which is close to its four-year average PE, on blended FY22F and FY23F earnings to reflect a more normalised environment. Maintain BUY.
Where we differ:
We remain positive that Riverstone would be able to increase its market share for CR gloves, taking it from new and existing players, 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.