2021: Strong Earnings Beat, Juicy Dividend Declared.
Riverstone reported record high revenue and net profit as ASPs surged, in line with our estimates. Healthcare glove ASPs continue to normalise as demand softens while cleanroom glove ASPs remains steady from strong secular demand. Riverstone’s planned S$1.5b phase 7 expansion has been delayed by a year, reaching 12b in total capacity by end-22. Maintain HOLD with a higher target price of S$0.82.
RESULTS
• Robust yoy results in line with expectations. Riverstone Holdings (Riverstone) reported record-high revenue and net profit as 2021 ASPs surged due to overwhelming nitrile gloves demand. 2021 revenue (+68.5% yoy) and net profit (+119.1% yoy) skyrocketed, forming 96.3% and 100.0% of our 2021 forecasts. Gross profit rose by 112.4% yoy as ASPs rose sharply in 2021. Pending approval, Riverstone declared a special interim dividend of 10.0 sen, along with a final dividend of 28.0 sen, taking 2021 total dividend to 48.0 sen (vs 26.0 sen in 2020).
• Healthcare glove ASPs continuing downtrend in 2H21. Despite strong full-year results, Riverstone suffered double digit declines for both its 2H21 revenue (-11.7% yoy, -47.4% hoh) and net profit (-26.0% yoy, -63.8% hoh). The sharp declines were largely due to healthcare glove ASPs normalising nearer to pre-COVID-19 levels and lower utilisation rates in 4Q21 as the majority of Riverstone’s customers were clearing their unused inventory during that quarter. Management has noted that healthcare glove ASPs are currently US$30- 35/1000 pcs and they are expected to normalise further to US$25-30/1000 pcs in 1Q22, just slightly above pre-COVID-19 levels. However, management mentioned that 1Q22 has seen
a recovery in both demand and utilisation rates as Riverstone’s customers restock their inventory for 2022 amid ongoing Omicron outbreaks.
• Cleanroom glove ASPs stable amid growing demand. ASPs for Riverstone’s higher margin cleanroom gloves remained stable at US$110-120/1000pcs as of 4Q21, supported by demand from long-term tech (semicons, electronics) customers. Management noted that the cleanroom glove segment remains a top priority for Riverstone and is expected to allocate more lines from upcoming expansions to tackle rising demand. We expect 2022 cleanroom ASPs to remain stable.
STOCK IMPACT
• Phase 7 expansion delayed. Due to COVID-19 outbreaks in Malaysia, 1.5b pcs of new capacity from the group’s phase 7 expansion has been delayed to end-22, leaving current total capacity at around 11b pcs. However, expansion plans have since resumed and Riverstone is expected to achieve 12b pcs by end-22, with an additional 1.5b pcs by end-23.
EARNINGS REVISION/RISK
• We cut our earnings by 2022 and 2023 earnings by 14.9% and 11.3% respectively while adding our 2024 earnings forecasts, after accounting for improving healthcare glove demand-supply dynamics and normalising healthcare glove ASPs. We now forecast 2022-24 revenue at RM1,822.8m (RM2,237.5m previously), RM1,932.0m (RM2,196.3m previously) and RM2,120.7m respectively. We also cut our 2022-24 net profit estimates to RM431.3m (RM506.8m previously), RM451.7m (RM509.3m previously) and RM474.2.0m respectively.
VALUATION/RECOMMENDATION
• Maintain HOLD with a higher PE-based target price of S$0.82 (S$0.68), pegged to 9.2x 2022F PE (5.6x previously). We base our valuation at -1SD (-2SD previously) of Riverstone’s long-term forward PE, on the back of a better future outlook.
• Although Riverstone’s supernormal earnings have normalised sharply from the peak in 2021, we think that healthcare glove ASPs are close to the bottom and are expected to stabilise sometime in 1Q22. Coupled with robust earnings from the cleanroom segment, we now reckon that there is limited downside to earnings given that most countries are still undergoing Omicron outbreaks. Potential upside may come from the discovery of a new lethal COVID-19 variant.
SHARE PRICE CATALYST
• Resurgence of COVID-19 infections.
• Better-than-expected demand for cleanroom gloves.
• Discovery of a new lethal COVID-19 variant.