• Riverstone delivered 2Q18 earnings of RM33.6m (+23.8% y-o-y) but disappoints slightly on margins. 
• Cleanroom capacity to grow by 33% to 2bn gloves p.a. as new facilities kick in progressively from 3Q18. 
• Riverstone can outperform peers amid industry headwinds as it ramps up on cleanroom glove capacity. 
• Maintain BUY; Target Price adjusted to S$1.25 after lowering gross margin assumptions.

Maintain BUY; Target Price Revised to S$1.25 on Lower Gross Margin Assumptions

A global market leader in niche Class 10 and Class 100 cleanroom gloves, Riverstone’s edge in the high-tech cleanroom segment sets it apart from the bigger boys. Given intense competition in the healthcare space, we see value in Riverstone’s growing cleanroom business – which allows the group to command consistently higher margins vs peers (16% vs peers’ 10-15% in FY17).

New cleanroom facilities are set to kick in from 3Q18 – which would grow cleanroom capacity by 33% to at least 2bn gloves p.a.

Riverstone’s 2Q18 profit grew 23.8% y-o-y to RM33.6m but disappointed slightly on the margin front, mainly due to the higher foreign worker levy and natural gas price hike. We have lowered our gross margin assumptions accordingly, resulting in a 7%/3% earnings cut for FY18F/19F respectively.

Maintain BUY as we believe that Riverstone can outperform peers as it ramps up on its incoming cleanroom glove capacities. 

Source: DBS Research - 08 Aug 2018