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Saturday, May 23, 2020

CGS-CIMB reiterates a 'buy' for Riverstone saying 'stars are aligned'

Broker's Calls
Amala Balakrishner 22/05/2020, 1:39pm

SINGAPORE (May 22): CGS-CIMB is reiterating its ‘add’ or ‘buy’ call on personal protective gear manufacturer Riverstone Holdings, but at a revised target price of $2.50. This is up 34% or 64 cents from its previous $1.86 call, analyst Ong Khang Chuen says in a May 21 note.He explains this comes a Riverstone “continues to be a laggard play in the glove sector, as it is trading at a 49% discount to its Malaysia-listed peers”. The five-year average stands at 30%.

Other Malaysia-based healthcare gear manufacturers such as Hartalega, Supermax and Kossan have also reported strong 1Q20 earnings.

Collectively, the three companies raked an average increase of 15.5% in revenue, and 63.4% in net profit for 1Q20, following a strong margin expansion from lower raw material prices.

Ong expects these companies to now increase their average sales price for gloves, as demand for gloves and dace masks remains strong for the next 10 to 12 months.

“Selling prices have been on a sequential uptrend since Mar, despite raw material prices trending lower. With peers guiding for more price increases to come, we are confident that Riverstone could further raise selling prices by another 5% q-o-q in 3Q20F”.

The company had earlier this month, raised prices of its healthcare gloves by 10% for regular customers, and 20% for ad hoc buyers.

Aside from this, Ong likes the stock for its ‘bumper profits’ expected this year. Already, it reported a “strong Jan – Mar” quarter, during which earnings soared 54.3% to RM46.6 million (S$15.2 million).

He expects this growth to extend to the ongoing 2Q20, with a 95% y-o-y increase in net profit to RM64 million. Overall, he is looking at a record 103% y-o-y increase in net profit to RM265 million.

This translates to an expectation of a 10.6% - 26.2% increase in its earnings per share for FY20-22F, says Ong. He elaborates that this is to account for: an increase in glove sales volume, higher average selling prices and better profit margins from higher economies of scale and lower raw material prices.As at 1.39pm, shares at Riverstone were down 4.1% or 8 cents to $1.86.

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