$Riverstone (AP4.SG)$ CGS CIMB are overweight on the gloves ...

CGS CIMB are overweight on the gloves sector - 4Q23 marks a fundamental inflection point. They believe the glove industry is showing early signs of recovery.

They think RSTON can emerge stronger from the industry downcycle vs. peers with its nimble execution, as it prioritises higher-margin customised products and its unique cleanroom offerings. They have an Add call and tp of 0.88 for RSTON, pegged to 16.0x CY25F P/E.

Riverstone's 4Q23 net profit of RM68m (+14% qoq, +61% yoy) was a beat on strong GPM expansion (+4.7% pts qoq), driven by: 1) a stronger product mix, with higher proportion of customised healthcare gloves sold, 2) lower raw material price, and 3) weaker RM against US. Total DPS of 22.5sen declared for FY23, translating to 8.8% yield. RSTON declared a final DPS of 7.5sen and special DPS of 7.5sen, bringing FY23 DPS to 22.5sen (8.8% dividend yield). RSTON still has excess cash in its balance sheet to sustain dividend payout ratio of >100% for the next 3 years, in their view.

They believe Riverstone (RSTON) stands out for its nimble execution, and forecast a 21% EPS growth for FY24F. Continued product mix optimisation for RSTON's healthcare segment (via its emphasis on growing customised glove offerings) led to sequentially better segment ASP and GPM in 4Q23. As of 4Q23, segment ASP rose to US$28.5/carton (3Q23: US$26.5) while GPM improved to 20% (3Q23: 16%). RSTON said there is currently limited competition in this niche market, and it has been able to capture this opportunity as its dipping lines were designed to cater to more flexible manufacturing originally intended for cleanroom glove production. It said priority for this segment remains product mix optimisation instead of volume growth, given intense price competition for generic glove remains. RSTON is currently reconfiguring one of its plants (previously decommissioned) to cater to the production of customised gloves and expects the new capacity to come onstream from 3Q24F onwards.

Cleanroom demand recovery (alongside tech sector) is another catalyst for RSTON. RSTON's cleanroom segment saw volume and revenue improve 6% qoq in 4Q23, and they expect further volume recovery in FY24F, riding on the modest recovery of the electronics manufacturing sector. RSTON is currently in talks with customers on a possible slight price reduction in return for price-locking. However, it is confident segment GPM can be kept at c.50% as selling prices are still at a c.30% premium to pre-Covid-19 levels.