• BUY, DCF-based TP drops to SGD1.18 from SGD1.20, 18% upside with 5% yield We emerged from Riverstone's post-results briefing feeling upbeat. Its growth prospects remain intact, premised on its differentiated strategy that should keep any near-term challenges within the generic product segment at bay. The continued recovery in global semiconductor sales, and RSTON's above-industry-average operating efficiency, should enable the company to chalk another strong year in 2025. Our TP incorporates a 0% ESG discount/premium, as RSTON's ESG score is on par with the country median.
• Key operating metrics. RSTON's cleanroom gloves (CG) ASP contracted to USD90/1k pieces, from USD94/1k pieces For 4Q24, its healthcare gloves (HG) ASP declined to USD27.40/1k pieces vs USD28.50/1k pieces in 3Q24. The sequential decline in both CG and HG prices were both attributed to the depreciation of the USD against the MYR (realised USD/MYR rate dropped by 5% QoQ). We expect the CG price change to be flattish-to-mild increase in 1Q25, given the bulk price has already been locked in periodically. HG prices are expected to remain range-bound in the USD27-28 range as well due to RSTON's product mix being tilted towards the generic segment (driven by trade diversions). Both CG and HG sales volumes contracted by 6% and 1% QoQ due to seasonality and shipment delays. Management expects the sales growth momentum for CGs to continue in the coming quarters, underpinned by sustained order replenishments from tech customers and the increasing adoption of cleanroom gloves by the pharmaceutical industry.
• Competitive landscape. Management highlighted that the price competition in non-US markets is intensifying after it lost some EU-based customers to Chinese competitors. The pricing difference between the US and non-US markets is now USD3-4/1k pieces vs USD1-1.5/1k pieces previously. Nevertheless, management remains optimistic that such an impact should be mitigated by increasing US sales (with a positive net impact on revenue).
• Capacity expansion plan. Phase 2 of this expansion is still ongoing, and involves three single lines for HG, which are expected to be completed by 2Q25. Post capacity expansion, RSTON's annual production capacity is expected to increase to 10bn from 8.5bn (new lines pa: 700m CGs, 800m CGs).
• Post results briefing, we trim FY25F and FY26F earnings by 1% and 5% after realigning our assumptions with management's guidance. Our dividend payout ratio remains largely unchanged, at 80% (FY24: 124%), which should translate to an indicative FY25 yield of 5%, based on yesterday's closing price. Our new DCF-based TP of SGD1.18 also implies 19x FY25F P/E or 0.8SD above its pre-COVID-19 5-year historical mean of 15x.

Source: RHB Research - 25 Feb 2025