Riverstone Holdings - Maybank Kim Eng 2015-11-06: Positive NDR; liquidity excitement

RIVERSTONE HOLDINGS LIMITED AP4.SI

Riverstone Holdings - Positive NDR; liquidity excitement

Investors impressed with Riverstone’s strong earnings beat. Management addressed investors’ dual concerns on possible slowdown of cleanroom segment and competition.
Remain positive on strong USD/MYR, demand for new capacity and 1-for-1 bonus issue to boost liquidity.
Maintain BUY & raise TP to SGD2.60 from SGD2.36. P/E target increased to 22x from 20x, to reflect higher average P/E target for peers.

We hosted an NDR for Riverstone after its 3Q15 results, c.10 institutional clients attended. They were impressed by Riverstone’s strong earnings growth and its continued dominance in the high ASP, high margin cleanroom glove segment.
While the demand for cleanroom glove in China has slowed down, increased orders from Vietnam and Japan more than offset this.
Management highlighted that its cleanroom gloves for mobile devices will be the key growth area, while HDD segment will remain stable. Its newly-developed chemical-free gloves are slowly replacing the more inferior polymer and cotton coated gloves.
Riverstone has customised this product to cater to customers’ need to reduce product corrosion. It is also in discussion to supply its product to Samsung in Vietnam, which has a sizeable factory with 30-40k employees.
To address competition in the healthcare glove segment, Riverstone will continue to focus on product customisation and quality-conscious customers.
It is also expanding its US market.

We expect strong earnings momentum to continue from favourable currency and strong demand for new capacity.
Riverstone has secured positive orders for its phase 3 expansion, set to commence full operations in 3Q16.
In addition, investors are excited about Riverstone’s 1-for-1 bonus issue and agree that better liquidity should help Riverstone to close its valuation gap with peers.
Investors also suggested that management should consider other means of increasing the free float.

John Cheong Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-11-06

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 2.60 Up 2.36