Riverstone, led by executive chairman Wong Teek Soon, expects 10% q-o-q volume growth in 3QFY25, supported by stronger demand from the semiconductor and AI-driven data-storage industries.
Customers such as Seagate and Western Digital are increasing output of hard disk drives and NAND devices, which in turn is lifting glove consumption, says Mo.
She observes that average selling prices and USD-Ringgit exchange rate to hold at around 4.25, while newly commissioned production lines have also come on-stream.
"While there is yet to be a full rebound, these lay the groundwork for a more meaningful recovery in 4QFY2025," says Mo.
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Citing her own channel checks, prices of nitrile latex, the key raw material, have eased by 3-6% q-o-q, while prices of key feedstocks acrylonitrile and butadiene have declined 3-4% q-o-q as well, which should translate into a slight gross margin gain of 1-2 ppt in 3QFY2025.
"As glove ASPs are typically set with a two-month lag, Riverstone is likely to capture most of this benefit in 3QFY2025, before customer pricing fully adjusts," says Mo.
Besides the electronics segment, Riverstone is seeing margins for its healthcare segment to edge up too, as the company avoids low-margin orders.
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US tariffs on pharmaceutical goods will not cover medical consumables such as gloves.
"Even if related costs arise within the supply chain, they would likely be absorbed by distributors or healthcare providers, given the essential and low-value nature of gloves. Hence, we expect the impact of the tariffs on Riverstone’s earnings to be minimal, and the policy’s push for US pharmaceutical onshoring may even lift long-term cleanroom demand," says Mo.
She notes that Riverstone, backed by strong net cash of RM602 million, has built up a strong dividend track record, consistently paid out more than 100% of its earnings in the preceding FY2022 to FY2024.
With scant capex requirements, Riverstone has ample flexibility to sustain high payouts, which by extension provides strong support for the stock, even as quarterly earnings recovery remains gradual. Mo estimates the dividend yield for 2026 will be an "attractive" 7.3%.
For the current FY2025 to FY2027, Mo has lowered her earnings projections by 9%, 6% and 5% respectively, to take into slower than expected recovery in the ringgit to US dollar exchange rate, which will weigh down on overall margins.
However, she has applied a higher valuation multiple of 20x FY2026 earnings, up from 16x FY2025, to reflect Riverstone's competitive advantage in cleanroom gloves, superior profitability vs peers, strong balance sheet, and dividend payout policy, thereby leading to a higher target price of 98 cents.
Riverstone, trading at 15 x FY2026 now, is at a discount of more than 40% off the 26x fetched by its peers, even though it gives a better yield.
Riverstone shares changed hands at 81 cents, up 7.28%, as at 9.33 am.
