Highlights

Simons Trading Research

Author: simonsg   |   Latest post: Tue, 27 Oct 2020, 8:56 AM

 

Riverstone Holdings - a Clean Bill of Health for 2H19F

Author:   |    Publish date:


  • RIVERSTONE (SGX:AP4)’s 1H19 results disappointed slightly, with net profit of RM62.7m at 44%/46% of our and Bloomberg consensus full-year estimates.
  • Nevertheless, we expect earnings recovery in 2H19F, with cleanroom gloves demand picking up and easing competition in healthcare gloves segment.
  • We resume coverage on Riverstone with an ADD call and Target Price of S$1.17, based on 17.0x FY20F P/E.

RSTON’s 2Q19 Results Were a Slight Disappointment

  • Riverstone's 2Q19 revenue grew 11.9% y-o-y, driven by an uptick in demand for both cleanroom and healthcare gloves, although healthcare gloves’ ASP trended lower due to lower raw material costs. GPM contracted 2.4% pts y-o-y due to a shift in product mix and lower ASP; this resulted in a net profit decline of 3.1% y-o-y.
  • We deem 1H19 results slightly below expectations, with net profit coming in at 44%/46% of our/Bloomberg consensus full-year forecasts.
  • Although Riverstone declared a higher interim DPS of RM1.55 (+15% y-o-y), management clarified that this was to offset the lower FY18 final dividend payout. We forecast dividend payout ratio to remain at 40% in FY19F.

Demand for Cleanroom Gloves Picking Up

  • A positive surprise during the analyst briefing was an acceleration in sales growth of cleanroom gloves (25% revenue contribution; 53% GP contribution in 2Q19) to 15-20% y-o-y since Jun, mainly driven by stronger demand from non-HDD manufacturers (FY18: single-digit sales growth).
  • We also expect cleanroom gloves’ GPM to improve in 3Q19, as prices of key raw materials including butadiene (68% of COGS) and acrylonitrile (27% of COGS) fell 34.3% and 17.1% y-o-y respectively in July.

Easing Competition for Healthcare Gloves Segment

  • Healthcare glove segment could also post stronger results in 2H19, in our view, helped by
    1. improved supply-demand dynamics from better absorption of new supply in the Malaysian glove industry, and
    2. tailwinds from weaker ringgit vs. US$.
  • Management noted that pricing competition has eased, and Riverstone has managed to pass half of the additional costs from Jul’s gas tariff hike to customers.
  • Supported by the easier comparison base of 2H18 (which was plagued by volatile raw material price movements and labour shortage), we forecast Riverstone’s GPM to expand by 1.2% pts y-o-y, and net profit to grow 18.2% y-o-y in 2H19F (1H19: -3.0% y-o-y).

Resume Coverage With ADD Rating and Target Price of S$1.17

  • With the expected earnings recovery in 2H19F, we resume coverage with an ADD rating. Our Target Price of S$1.17 is pegged to 17.0x CY20F P/E (Riverstone’s 5-year average historical P/E).
  • At 13.0x FY20F P/E, which represents a 31% discount to Malaysian peers, we deem Riverstone’s valuation undemanding.
  • Potential re-rating catalysts include stronger-than-expected volume growth of cleanroom gloves.
  • Key downside risks include pricing competition leading to a fall in healthcare gloves’ margins.

Source: CGS-CIMB Research - 8 Aug 2019

Share this
Labels: Riverstone

Related Stocks

Chart Stock Name Last Change Volume 
Riverstone 3.65 +0.06 (1.67%) 1,480 

  Be the first to like this.
 


APPS
I3 Messenger
Individual or Group chat with anyone on I3investor
 
 

63  97  114  829 

ActiveGainersLosers
Top 10 Active Counters
 NameLastChange 
 Jiutian Chemical 0.085+0.003 
 Rex Intl 0.145+0.014 
 Aspen 0.26-0.015 
 Sembcorp Marine 0.132+0.003 
 QT Vascular 0.0090.00 
 SoilbuildBizReit 0.465-0.005 
 Medtecs Intl 1.19-0.02 
 CapitaMall Trust 1.84+0.02 
 CFM 0.044+0.001 
 Abundance Intl 0.0380.00