Riverstone Holdings

CIMB Research, March 4

TOGETHER with its glove customisation capability, Riverstone is set to capture a larger piece of the disposable gloves market. We initiate coverage with an "add" rating and target price of S$0.90, based on 12.1 times (one standard deviation above historical average) CY2015 PE.

Nitrile gloves have become increasingly preferred over traditional latex due to the elimination of latex allergies and their lighter weight. As glove makers around the world switch focus from latex to nitrile, nitrile has been Riverstone's specialty from the start. In particular, it is a dominant player in the niche high-end clean-room gloves segment, supplying about 60 per cent of global demand.

With decades of expertise and product development under its belt, it has the technology and experience to cater to the ever-developing needs of its customers, particularly those operating in demanding clean-room environments.

Raw materials for its gloves like latex and butadiene have seen a benign pricing environment recently. This ought to support Riverstone's margins even as it boosts production when new capacity comes in.

Improved manufacturing efficiency could also result from the greater product specialisation enabled when more production lines start running.

Riverstone produces medical gloves and has widened its range of clean-room gloves to cater to more segments within the clean-room industry. We see its diversified sources of revenue as offering visible and dependable revenue growth.

Estimated dividend yields for CY2014-15 are 3.3-3.7 per cent, above its peers.

ADD