SINGAPORE (August 20): CGS-CIMB maintains its "add" call on the Malaysia-based glove manufacturer, Riverstone Holdings, with a target price of $ 1.30.
This came on the back of the research house that organizes a non-deal roadshow for the group in Kuala Lumpur, where investors showed a great interest in the group.
In a Friday report, analyst Colin Tan said: "We remain positive about the outlook for earnings growth, as Riverstone is on track to increase its annual production capacity by 18% to 9.0 billion gloves by the end of FY18F and then to 10.4 billion end of FY19F. "
Meanwhile, the utilization remains optimally up to 90% and will probably be sustained by the expansion of capacity, motivated by a huge order book and a robust growth in the demand for clean gloves for the cleanroom and healthcare.
The group believes that it currently has around 55% of the global market share for custom-made cleanroom gloves.
This segment represents around 20% of the group volume output in 2Q18, but has contributed more than half of its net profit because it can impose higher margins. The most important markets are the countries in Asia and the Pacific, where RSTON sells directly to customers who mainly deal with lenses for smartphones, car sensors and batteries.
The group's Healthcare gloves had 10% more y-o-y more shipping volume and accounted for about 80% of the total exports of gloves in 2Q18.
The management is optimistic that the strong demand for gloves for healthcare would be maintained in the light of the continued growth in the demand for global gloves and the growing confidence of customers in the quality of their gloves.
"We do not consider Riverstone's current 14.3x FY19F P / E as undemanding, which is more than 30% off the average of 20.5x Malaysian peers (ex-Hartalega), given the accelerated growth of the core EPS with 13.1-16.5% in FY18-19F (based on our estimates) on stabilization margins and capacity expansion, we think Riverstone is relatively cheap. "Tan says.
At 11:00 am, shares in Riverstone were 1 cent lower at $ 1.10 or 3.3 times FY18 book with a dividend yield of 2.4%