RIVERSTONE HOLDINGS LIMITED
AP4.SI
Riverstone Holdings - Expansion is on track
- We expect Riverstone’s topline to rise by a 3-year CAGR of 17% in FY16-18, driven by capacity expansion from 5.2bn pieces p.a. to 8.2bn pieces by FY18.
- The phase II expansion’s 1bn pieces p.a. has been fully taken up by new customer orders and another 1bn pieces from phase III are slated to come on stream in 3Q16.
- We expect sales expansion in FY16-18 to be mainly led by the healthcare segment.
- Stiff competition is a key risk and may lead to GPM reversion in FY16-18.
- Maintain Hold with a target price of S$2.15, based on 17.5x CY17 core P/E.
■ Growing topline driven by capacity expansion
- We expect Riverstone’s topline to expand by a 3-year CAGR of 17% in FY16-18, mainly driven by production capacity expansion.
- To recap, Riverstone is undergoing a multiyear programme to expand its rubber glove production capacity. The group plans to expand its production capacity in phases, adding capacity of 1bn pieces per year during FY14-18, towards an eventual total capacity of 8.2bn pieces by end-FY18.
■ Phase II capacity fully taken up; launching phase III in FY16
- Riverstone’s phase II capacity expansion of 1bn pieces was completed in Nov 15, raising the group’s total production capacity to 5.2bn pieces p.a. (FY14: 4.2bn pieces).
- We understand that the phase II capacity has been fully taken up by new customer orders. There have also been indications of commitment for phase III capacity of another 1bn pieces which management expects to complete by 3Q16.
■ Faster sales expansion of healthcare gloves
- We expect revenue growth to be mainly led by the more generic healthcare glove segment. In terms of dollar value, cleanroom gloves formed c.40% of sales in 3Q15 while healthcare gloves comprised c.60% of sales in the same period (FY14: c.50% each).
- We expect c.10% yoy sales growth for cleanroom gloves and 17-27% yoy growth for healthcare gloves in FY16-18, driven by increasing demand and supported by expanded capacity.
■ GPM is at a 5-year high, reversion is likely in FY16-18
- Fueled by favourable FX and benign raw material prices, Riverstone’s GPM surged to a 5-year high of 32% in 3Q15 (3Q14: 26%).
- We deem the high GPM unsustainable as the group may have to surrender part, if not all, of the benefits from favourable FX and low raw material prices to end customers due to keen competition.
- Our forecasts have factored in a gradual GPM reversion from 31% in FY15 to 27.6% in FY18.
■ Maintain Hold, with a target price of S$2.15
- We maintain our Hold rating with a target price of S$2.15, based on 17.5x CY17 core P/E (pegging to Malaysia peer average).
- While we continue to like Riverstone for its leading 60% market share in the niche cleanroom segment and its meaningful capacity expansion ahead, we believe that the positives have been priced in.
- Competition is a key risk.
Roy CHEN
CIMB Securities
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William TNG CFA
CIMB Securities
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http://research.itradecimb.com/
2015-12-09
CIMB Securities
SGX Stock
Analyst Report
2.15
Same
2.15
