Excerpts from DBS report

Analyst: Lee Keng LING

What’s New
• Upgrade to BUY as valuation becomes attractive again after share price correction on vaccine news


Share price: 


• Firm ASP and demand trend in FY21F; order visibility extends till December 2021

• Mass availability of vaccines will take time; new COVID-19 strain raises risk

• FY20F/21F/22F earnings adjusted by -16%/+19%/+4% on revision to ASP assumptions


Valuations turning attractive

Investment Thesis:

Bumper dividend expected

"Riverstone could declare a bumper dividend on the back of exceptionally high profits driven by strong demand and high ASP in year 2020. DPS could more than double to 5Scts in FY20F, based on 40% payout ratio, as compared to 2.42 Scts in FY19. Based on our projections, dividend yield works out to c.4%."

-- DBS report

Upgrade to BUY; valuation attractive after correction. Share price has corrected by close to 50% post our downgrade in November last year.

RIVERSTONE is now trading at an attractive 7.3x FY21F PE, which is near -1SD of its 5-year PE average.

Furthermore, we also expect a bumper dividend for FY20F.

Expect firm ASP and demand in FY21F; extension of order visibility. Average selling price (ASP) for FY21F is expected to be firm on the back of strong demand and tight supply.

The ASP increase for January and February is about 5% to 10% m-o-m.

Order visibility has further extended to December 2021. Sustainable glove demand post-COVID. Even with the availability of a COVID-19 vaccine, demand is not expected to taper off immediately as hygiene is still a key concern.

Upgrade to BUY, TP S$1.85. Earnings estimates for FY20F/FY21F/FY22F are adjusted by -16%/+19%/+4% on revision to ASP assumptions.

However, we have cut our target price (TP) to S$1.85 (prev S$2.03), still pegged to average 5- year price-to-earnings (PE) of 12.8x, but rolled forward to blended FY21F/FY22F earnings to capture the post COVID-19 impact.

Where we differ:
Our TP is lower than consensus as we have pegged it to blended FY21F/FY22F earnings to capture the post COVID-19 impact. FY21F and FY22F earnings is also below consensus as we adopt a more cautious stance.

Key Risks to Our View:
Global economic slowdown. While margins for cleanroom (CR) gloves are higher, demand for these gloves could be threatened by a global economic slowdown.

Full report here. 

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