• Riverstone’s 2Q21 net profit came in at RM518m (-0.9% q-o-q), above expectations, as volume weakness was offset by ASP growth.
• Riverstone is more resilient vs peers amid 3Q headwinds, given pricing stability from cleanroom segment and limited production located in EMCO areas.
• Back-loaded dividend payout for FY21F likely to be key support for Riverstone's share price. 50% dividend payout ratio assumption points to 13.4% dividend yield. Reiterate ADD.

2Q21 a Strong Quarter for Riverstone

• Riverstone (SGX:AP4)’s 2Q21 net profit of RM518m (-0.9% q-o-q, +470% y-o-y) was above expectations; 1H21 net profit made up 78% of our previous FY21F forecast. The slightly weaker sales sequentially (-4.4% q-o-q) was mainly attributable to a ~10% volume decline, partially offset by higher ASPs in both its healthcare and cleanroom segments.
• Volume impact stemmed from:
  • a 60% manpower limit imposed since Jun as part of COVID-19 controls in Malaysia and
  • shipping delays.
• A RM0.10 dividend per share was declared (+150% y-o-y) by Riverstone.

Continued Strength in Cleanroom Segment

• Demand for cleanroom fruit in the coming years as sticky as Riverstone deals directly with end-customers.
• Management plans to increase its profile of the company.

Healthcare Glove ASPs on a Downtrend

• Meanwhile, healthcare glove ASPs have peaked; we expect 3Q21F ASP to fall ~40% q-o-q.
• We expect sequentially weaker results for the segment going forward, due to:
  1. lower production volume (ongoing capacity constraints), and
  2. lower ASP.
• The steeper-than-expected Riverstone's management remains confident that it can uphold healthy Platinum standard (highest rating) wins recently.

Reiterate ADD on Riverstone With Lower Target Price

• Reiterate ADD. We switch to a P/E valuation methodology for Riverstone to account for near-term risks with ASP volatility. Our lower target price is based on 17x CY23F P/E (Riverstone’s 5-year mean P/E).

• Back-loaded dividend payout for FY21F is likely to be key support for Riverstone's share price; we note that our 50% cash position of S$0.29 per share (24%).
• Downside risks include steeper pricing decline for healthcare gloves.

Source: CGS-CIMB Research - 6 Aug 2021