CGS-CIMB has upgraded Riverstone Holdings : AP4 +0.83% to &ldquo buy&rdquo from &ldquo hold&rdquo on its relatively strong growth projection and nimble execution as it taps into higher-margin products. This comes after Riverstone released its Q3 results last week.

 

The upgrade came with an increased price target of S$0.75, from S$0.60 previously. This was based on 14.5 times the brokerage&rsquo s earnings estimate for 2025, after it raised earnings forecasts for the glove maker.

 

CGS-CIMB raised the FY2023 earnings forecast by 16.4 per cent from its previous estimate, with a core earnings per share (EPS) of 14.2 sen.

 

Projected EPS is now 16.5 sen for FY2024, up 19.4 per cent, while EPS forecast for FY2025 increased 16.4 per cent to 17.7 sen.

 

Analyst Ong Khang Chuen highlighted Riverstone&rsquo s agile strategy to focus on higher-margin customised products and unique cleanroom offerings, which allowed the company to emerge stronger from the industry downcycle compared with its peers.

 

While selling prices for generic healthcare gloves remained flattish, he noted that the specialised cleanroom and healthcare glove manufacturer has managed to lift its segment average selling price and gross processing margin with such customised glove offerings.

 

The company said there was &ldquo limited competition for this niche market currently&rdquo , and Ong likes the counter for its capability to capture this opportunity.

 

This is especially because the glove maker&rsquo s dipping lines were designed to cater to more flexible manufacturing, as it was originally intended for cleanroom glove production.

 

The analyst added that the company has also observed slight demand improvement in the cleanroom segment since its fiscal fourth quarter and is optimistic on further recovery in the next financial year.

 

&ldquo Downside risks include weaker-than-expected cleanroom demand amid a still sluggish semiconductor sector, which could pressure Riverstone&rsquo s average selling prices and margins,&rdquo said Ong.

 

Other downside risks include its inability to pass on higher raw material costs to customers or a faster-than-expected appreciation of Malaysian ringgit against the US dollar.