Phase 1 to add 1bn  capacity by  end-FY14.  Riverstone's new facility, Phase  1,  will  add  another  c.1bn  (25%)  in  capacity,  bringing  its  total capacity  to  4.2bn  from  3.2bn  annually.  It  consists  of  six  lines  -  three single  and  three  double  lines  -  with  two  single  lines  to  commence production in October, and one single and one double each in November and December. From FY15 onwards,  the product mix of  this new facilitywill likely be 80% for healthcare and 20% for clean room.

Orders for three lines in hand.  Riverstone has already secured orders for half of its production lines for Phase 1, with three new customers from Germany,  the  US  and  Japan  -  having  signed  fixed  contracts  for  twoyears  to  take  up  one  line  each.  However,  both  parties  can  exit  the contract after six months if either side is not contented, provided  that sixmonths'  notice  is  given.  This  means  for  its  three  lines,  its  production capacity has been fully taken up for at least a year.

Potential headwinds ahead in 3Q14. With the big four  Malaysian glove makers  aggressively expanding capacity,  we expect  intense competition to pressure  ASPs. In addition, additional costs for the new plant wouldbe incurred in Q3, with no production as yet since it has to hire and train new workers first. Still, we expect its 4Q performance to make up for any potential shortfall in 3Q earnings.

Maintain  BUY with a SGD1.15  TP. Jarick Seet takes over coverage of Riverstone with this research note.  We are excited  and  remain positive over  its  expansion  plans  ahead.  Phase  2  of  its  expansion,  which  may cost up to MYR50m, could add another 1bn to its total capacity. Phase 2 is  already  30%-completed  so  far,  and  full  production  is  slated  to commence by end-FY15. Maintain BUY, with a SGD1.15 TP.

Source: OSK-DMG