Riverstone Holdings (RSTON SP) Downgraded to HOLD by UOB Kay Hian on Weak 1Q25 Results

UOB Kay Hian covering the report. Friday, 09 May 2025
Riverstone Holdings Faces Near-Term Headwinds, Analyst Downgrades to HOLD
Riverstone Holdings Ltd (RSTON SP), a producer and distributor of cleanroom products including gloves, packaging, face masks, and more, is facing challenging near-term conditions, leading analysts at UOB Kay Hian to downgrade the stock from a previous recommendation. The company’s recent first-quarter results for 2025 fell short of expectations, primarily due to cost pressures and unfavorable currency movements.
Based on a share price of S$0.855, the new target price is set at S$0.820, suggesting a potential downside of -4.1%. This represents a significant reduction from the previous target price of S$1.16.

Company Overview
Riverstone Holdings is a key player in providing cleanroom products essential for highly-controlled environments. Their product range is diverse, including:
Nitrile and natural rubber gloves
Cleanroom packaging materials
Finger cots
Face masks, face pouches, hoods, caps, jumpsuits, and swabs
The company operates within the Health Care GICS sector. As of the report date, Riverstone has 1,482.2 million shares issued, with a market capitalization of S$1,267.3 million (US$978.2 million). The 3-month average daily turnover stands at US$2.2 million. The stock’s 52-week high/low is S$1.12/S$0.77. Recent price performance shows a mixed picture: 1.8% gain over 1 month, (18.1%) loss over 3 months, (4.4%) loss over 6 months, 10.3% gain over 1 year, and (21.1%) loss year-to-date. Major shareholders include Wong Teek Son (51.3%) and Lee Wai Keong (8.8%). FY25 NAV/Share is estimated at RM0.98 and FY25 Net Cash/Share at RM0.42.

1Q25 Performance Analysis
Riverstone’s 1Q25 earnings came in at RM56 million, marking a 22% year-on-year decline and a 19% quarter-on-quarter decrease. This result missed both UOB Kay Hian’s and consensus full-year estimates, accounting for only 19% and 17% respectively.
The key factors contributing to the lacklustre performance were:
Higher raw material costs, which increased by 18% year-on-year.
An unfavourable forex impact, with a net forex gain of RM3.3 million in 1Q24 reversing to a loss of RM3.1 million in 1Q25 due to a weaker US$/RM exchange rate.
The company also announced a lower interim dividend for 1Q25, reducing it by 25% year-on-year to 3.0 sen (compared to 4.0 sen in 1Q24). This implies a payout ratio of 78.7% for the quarter (down from 82.1% in 1Q24) or an annualised yield of 4%.
Despite the earnings challenges, volume growth remained robust. Revenue saw a marginal 1% year-on-year increase in 1Q25, with higher healthcare glove sales volume largely offsetting the forex losses. Total sales volume grew by approximately 14% year-on-year. Analysts anticipate this volume growth to be sustained, partly driven by the recovery in the semiconductor industry, which impacts demand for cleanroom products.
However, Average Selling Prices (ASPs) for the healthcare segment faced pressure. The healthcare glove market remains competitive, with increased production from Malaysian players. This, combined with higher output of generic healthcare gloves, led to a 5-8% quarter-on-quarter decline in healthcare glove ASPs in 1Q25. This resulted in a 5 percentage point quarter-on-quarter decline in the gross margin for healthcare gloves. In contrast, cleanroom gloves saw a 2% quarter-on-quarter increase in ASP, attributed to the production of higher-end gloves.
Overall margins were under pressure in 1Q25. Gross margin declined by 6.5 percentage points year-on-year to 32.6%, primarily due to higher raw material costs, forex losses, and a sales mix skewed towards lower-margin generic healthcare gloves. However, the gross margin remained stable quarter-on-quarter, suggesting some stabilisation in the cost structure. Net margin also decreased by 6.5 percentage points year-on-year to 22.4%.
Here is a summary of the 1Q25 results:

Stock Impact and Outlook
A significant headwind identified is the delay in operational ramp-up due to gas supply constraints. Previously, new cleanroom (six) and healthcare (six) production lines were expected to increase total capacity to around 10.5 billion gloves in 2025. While three healthcare lines have started production, the remaining lines have faced delays, now expected to commence operations only in July. This delay is suspected to be linked to a fire at a Petronas plant in Selangor, which disrupted gas supplies and affected both of Riverstone’s plants. This setback limits the company’s ability to scale production as originally planned.
Despite the operational delays, Riverstone’s strong financial position is expected to support shareholder returns. The company holds a robust cash balance of RM760 million (approximately 18% of its market cap) and generated operating cash flow of RM84 million in 1Q25 (+11% year-on-year). This financial strength suggests Riverstone could maintain a payout ratio exceeding 100% for 2025-27, continuing to reward shareholders.

Earnings Revision and Valuation
In light of the weaker 1Q25 performance and the identified headwinds, UOB Kay Hian has revised down its earnings forecasts for 2025-27 by 11-14%. This revision incorporates the expectation of a weaker US$/RM exchange rate and lower ASPs for the healthcare segment. Although volume growth is anticipated to persist, it is expected to be more subdued than initially projected due to the gas supply constraints delaying the ramp-up of new lines.
Consequently, the recommendation has been downgraded to HOLD. The new PE-based target price of S$0.82 is pegged to 18x 2025F PE, which is 1 standard deviation above the long-term historical mean. The PE multiple peg has been reduced from the previous 20x (+1.5 standard deviations) to reflect the near-term headwinds. The prolonged uncertainty surrounding global trade and monetary policy is weighing on the US dollar, impacting Riverstone’s earnings, while elevated raw material costs are expected to continue pressuring margins.

Share Price Catalysts
Potential catalysts that could positively impact Riverstone’s share price include:
Higher-than-expected demand for both cleanroom and healthcare gloves.
Higher dividend payouts to shareholders.

Key Financials and Metrics
Here are key financial figures and metrics for Riverstone Holdings:
KEY FINANCIALS

PROFIT & LOSS

BALANCE SHEET

CASH FLOW

KEY METRICS