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$1.33), based on 18.8x CY16 core P/E (pegged to its Malaysia peer average).
- Key potential catalysts include earnings growth driven by capacity expansion and the benefits from economies of scale.
2Q15 financial highlights
- Riverstone’s reported net profit jumped 68% yoy to RM27m in 2Q15 (1Q14: RM16m) on the back of
- a full-quarter production from the 1bn-piece capacity added in 2H14,
- favourable FX translation of the US$-denominated sales and
- 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
Source: http://research.itradecimb.com/
