• Maintain BUY and DCF-derived TP of SGD1.02, 15% upside with c.5% FY24F yield. Riverstone’s 3Q24 core earnings grew 33% YoY to MYR77.9m, bringing the 9M24 total to 75% and 75% of our and Street full-year estimates. Results are in line, premised on the solid recovery in demand for healthcare and cleanroom gloves. It declared an interim DPS of MYR0.04, representing a 82% payout ratio. We continue to like the company for its unique exposure in the cleanroom glove segment, above-industry margin profile, and consistent dividends.

• Results overview. 9M24 core earnings are in line, underpinned by increased volume sales and a higher ASP. While RSTON’s product mix remains favourable (higher sales contributions from cleanroom and healthcare specialty gloves), GPM contracted by 5.5ppt QoQ on higher raw material prices (ie that of nitrile and natural latex). Core profit margin was flattish QoQ, at 26.1%. The company declared an interim DPS of MYR0.04 (bringing its 9M24 payout to MYR0.12; 9M23: MYR0.10), representing a payout ratio of 82%.

• Outlook. The recovery in global semiconductor sales continues to bodewell for the demand outlook of the cleanroom glove industry. This is after the Semiconductor Industry Association reported global semiconductor sales of USD53.1bn for August (+20.6% YoY, +3.5% MoM). The continuation of robust chip sales indicates that the global semiconductor industry is experiencing a secular recovery trend. This, in turn, is fuelled by a growth in demand for chips for AI computing (which, in turn, has a spillover effect on the demand for memory and graphics processing), capacity build-up for wafer fabrication capacity, and the increasing adoption of cleanroom gloves beyond the traditional life sciences industry. In its healthcare segment, we expect RSTON to diversify product offerings towards specialty gloves to yield better margins – specialty products typically command higher ASPs than healthcare examination gloves. As the healthcare glove industry’s supply-demand dynamics inch towards an equilibrium,the balance of risks is tilting towards the upside – evidenced by the accelerating growth in the latest export data (3Q24 export volume: +20% QoQ).

• We make no change to our earnings estimates, pending RSTON’s post-results briefing today.

• Maintain BUY. Our DCF-derived-TP of SGD1.02 also implies 18x FY25F P/E, which is 0.7SD above its pre-pandemic 5-year historical mean of 15x. Our TP incorporates a 0% ESG premium, since RSTON’s ESG score is on par with the country median. Key downside risks: Lower-than-expected sales volume, weaker-than-expected USD vs MYR, and higher-than-expected raw material prices.

Source: RHB Securities Research - 12 Nov 2024