Riverstone Holdings - CIMB Research 2018-02-23: 4Q17 In Line; Growth Outlook Remains Robust In FY18

Riverstone Holdings - CIMB Research 2018-02-23: 4Q17 In Line; Growth Outlook Remains Robust In FY18 RIVERSTONE HOLDINGS LIMITED AP4.SI

Riverstone Holdings - 4Q17 In Line; Growth Outlook Remains Robust In FY18

  • Riverstone's 4Q17/FY17 net profit within expectations, at 25.6%/96.5% of our full-year forecast.
  • 4Q17 revenue up 15.1% y-o-y due to continued strong demand for its gloves.
  • On track to increase production capacity to 10.4bn pieces by end-2019, which represents 36.8% growth from its current production capacity of 7.6bn pieces.
  • We trim our FY18-19F EPS by 10.0-11.1% to factor in weakening US$ against RM while maintaining 24.0% gross margin projections over our forecast period.
  • Maintain ADD with a higher Target Price of S$1.28 as we roll over valuation base to FY19, based on a higher 18.6x P/E multiple (sector average excluding Hartalega).



Higher raw material costs eroded 4Q17 margin 

  • Riverstone's 4Q17 revenue rose 15% y-o-y on higher sales volume though PATMI fell 5% y-o-y to RM34.2m. Gross margin fell 1.9% pts to 24.4% due to higher raw material prices and lower average selling prices primarily for healthcare gloves amid intense competition.
  • Increased labour costs also led to higher operation costs for the quarter. FY17 net profit rose 7.4% y-o-y to RM129.3m, accounting for 96.5% of our full-year forecast and 93.7% of consensus.


Around 19% growth in production volume for cleanroom gloves 

  • Production volume of cleanroom gloves increased by c.19% in 4Q17 (c.20% for FY17) while that for lower-margin healthcare gloves rose c.5% in 4Q17 (c.7% for FY17), according to the management. 
  • Riverstone continued to see strong demand growth for its cleanroom gloves in its operating markets, supported by industries dealing with electronics, sensors and lenses as well as due to increased use of nitrile gloves over the less-comfortable PVC gloves.


On track to ramp up production capacity to 10.4bn pieces in FY19 

  • Annual production capacity expanded to 7.6bn pieces of gloves as at end-17, contributed by seven newly commissioned production lines. 
  • The company is on track to further expand capacity to 10.4bn pieces by end-2019 to support burgeoning demand for its gloves, adding capacities of 1.4bn pieces by end-2018 and an additional 1.4bn in 2019.


Balance sheet remained robust with net cash position 

  • Riverstone was in a net cash position of RM89.3m (FY16: RM103.2m) as at end-Dec 17, generating RM145.6m in cash from operations in FY17. 
  • The company maintained its dividend payout at 40% as it declared a final dividend of 5.70 sen per share, which brought the total FY17 DPS to 7.0 sen (c.2.5% dividend yield).


Maintain Add with a higher Target Price of S$1.28 

  • We trim our FY18-19F EPS by 10.0-11.1% to factor in weakening US$ against RM and conservatively maintain our 24.0% gross margin projections to reflect high raw material prices. Approximately 80% of its sales are in US$ and c.40%-50% of its cost of sales is in US$. 
  • Our Target Price is raised to S$1.28 as we roll over our valuation to FY19, based on a higher 18.6x P/E multiple (sector average excluding Hartalega; 16.3x previously). Maintain Add.
  • Key risks include higher production costs.




Colin TAN CIMB Research | http://research.itradecimb.com/ 2018-02-23
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.28 Up 1.200



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