Riverstone Holdings (RSTON SP) - Maybank Kim Eng 2016-11-10: Steady Recovery

Riverstone Holdings (RSTON SP) - Maybank Kim Eng 2016-11-10: Steady Recovery RIVERSTONE HOLDINGS LIMITED AP4.SI

Riverstone Holdings (RSTON SP) - Steady Recovery

Results in line, gradual recovery in all segments 

  • 3Q16 earnings were in line; 9M16 met 72% of our FY16E. 
  • Core earnings for 3Q16 fell 4% YoY but increased 21% QoQ. The improvement was attributable to: 
    1. gross margin recovery (+1.7ppt QoQ) from better product mix and improved USD/MYR; 
    2. revenue growth from increased capacity and higher demand, where sales volume increased 15% QoQ; 
    3. better cost management. 
  • We expect recovery to continue as capacity increases and the macro environment stabilises. Maintain HOLD and TP of SGD0.92 (16x FY17E EPS; 1 SD above mean).

Improving demand for lucrative cleanroom gloves 

  • The sales volume for higher margin and ASP cleanroom gloves improved by 15% QoQ, as customer demand in the semiconductor and flat panel segments recovered. 
  • Management sees more growth potential in the space as customers’ acceptance for its lower specs cleanroom gloves improve. 
  • For 4Q16, sales volume should continue to recover.

Stabilising macro factors for healthcare gloves 

  • The competition, forex and cost factors have stabilised in the 2H16.
  • These were reflected in the stable ASP and gross margin QoQ. We note that ASP increased marginally in MYR terms and gross margin of 18% remained unchanged QoQ. Management expects the sector to remain stable in the near term as customer demand remains good and pricing power has started to improve.

Capacity expansion on track, orders secured 

  • Phase 3 expansion, which will add 19% new capacity, is on track, although there were some issues involving labour constraints and power shortages. 
  • Only two out of six lines have started production, the rest should commence closer to year end. 
  • Phase 4 expansion is also on track; it is expected to be completed in Aug 2017.

John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-11-10
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 0.920 Same 0.920