RHB Securities 2015-08-05: Riverstone Holdings Limited - Strong Momentum To Sustain. Maintain BUY.

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RIVERSTONE HOLDINGS LIMITED AP4.SI

Strong Momentum To Sustain

• Riverstone reported a stellar 2Q15, with PATMI surging 68.1% YoY to MYR27.0m on MYR129.0m revenue (+33.2% YoY), thanks largely to the weakening MYR. 
• Maintain BUY with higher SGD2.06 TP, based on DCFE valuation (CoE: 8.0%, TG: 2%, 18% upside), implying 19.7x FY15F P/E. 
• We expect continued macroeconomic tailwinds and the cleanroom business to pick up from 2H, sustaining the strong momentum. 

 Results boosted by favourable macroeconomic tailwinds. 

• Riverstone delivered yet another impressive set of results following its strong 1Q performance. 
• Revenue continued to grow by >30% YoY due to strong demand from the healthcare segment and the strengthening of the USD against the MYR. 
• ASP for the cleanroom segment increased during the quarter while ASP for the healthcare segment held steady (in MYR). 
• Gross margins also held above the 30% level despite larger revenue contribution from the healthcare segment (healthcare: 55% vs cleanroom: 45%), which yielded lower margins. 
• Once again, the margin expansion was attributable to a weaker MYR and cheap raw material costs, which in turn resulted in lower production costs. 

 Strong momentum to sustain. 

• Management remains confident that the strong momentum can be sustained moving into 2H. 
• Growth of the cleanroom segment is likely to resume as demand should pick up from 2H onwards, on track for the 10% annual growth target. 
• The macroeconomic tailwinds – a weak MYR and cheap raw material prices caused by low oil prices – are likely to stay and should continue to benefit the group, going forward. 

 Estimates raised; reiterate BUY with a higher TP. 

• Hence, we raise our earnings estimates to factor in the favourable industry outlook. 
• We also switch our valuation methodology to DCFE from 1-year forward P/E to better quantify the long-term growth potential of the rubber glove industry, which is undergoing aggressive capacity expansion. 
• Our new TP of SGD2.06 (CoE: 8.0%, TG: 2%) (from SGD1.54) implies FY15F P/E of 19.7x, in line with the peer average (19.7x). 
• Furthermore, Rivestone’s niche cleanroom business makes it an attractive acquisition target for other glove makers.

Singapore Research | http://www.rhbgroub.com/ RHB Securities 2015-08-05

BUY Maintain BUY 2.06 Up 1.54