CIMB Securities 2015-08-05: Riverstone Holdings Ltd - 2Q15 Results. Another spectacular quarter. Maintain HOLD.

Another spectacular quarter 

  • Riverstone’s 1H15 core net profit came in stronger than expected, at 53% of our full-year forecast. 
  • The good results were mainly attributable to a high GPM, helped by US$’s continued strength against RM, as well as favourable raw material prices. 
  • We raise our FY15-17 core EPS estimates by 12-15% as we factor in slower GPM reversion. 
  • We maintain our Hold rating on Riverstone, with a higher target price of S$1.85 (prev S$1.33), based on 18.8x CY16 core P/E (pegged to its Malaysia peer average). 
  • Key potential catalysts include earnings growth driven by capacity expansion and the benefits from economies of scale. 

2Q15 financial highlights 

  • Riverstone’s reported net profit jumped 68% yoy to RM27m in 2Q15 (1Q14: RM16m) on the back of 
    1. a full-quarter production from the 1bn-piece capacity added in 2H14, 
    2. favourable FX translation of the US$-denominated sales and 
    3. still-benign raw material prices. 
  • GPM was still high at 30.1% in 2Q15 (FY14 average: 27.3%), albeit slightly lower than 1Q15’s 31.6%, mainly due to the higher contribution from lower-margin healthcare gloves. 
  • At end-2Q15, Riverstone had RM95.9m cash with zero debt. 
  • The group declared an interim dividend of 2.4 sen per share for 1H15. 

2H15 Outlook 

  • The group’s expansion plan is progressing well. 
  • An additional 1bn pieces p.a. new capacity will come onstream in stages and raise Riverstone’s total production capacity to 5.2bn pieces p.a. by Oct. 
  • We understand that the new capacity has been fully taken up to date. 2H15 GPM should continue to be supported by the strong US$ (RM:US$ currently at 3.88 vs 3.65 avg in 1H15 and 3.3 avg in FY14) and benign raw material prices though a slight dip is expected as Riverstone may need to pass part of the benefits from FX and raw material prices to its customers to stay competitive. 

Maintain Hold 

  • While acknowledging the challenging landscape for the rubber glove industry due to stiff competition, we find comfort in Riverstone’s execution and upbeat capacity take-up to date. 
  • Riverstone plans to add 1bn pieces capacity per year throughout FY15-18, raising its total capacity to 8.2bn by end-18.

Analyst: Roy CHEN; William TNG, CFA