Riverstone Holdings (RSTON SP) - Maybank Kim Eng 2018-02-26: Beneficiary Of Tech Boom; Upgrade To BUY

Riverstone Holdings (RSTON SP) - Maybank Kim Eng 2018-02-26: Beneficiary Of Tech Boom; U/G To BUY RIVERSTONE HOLDINGS LIMITED AP4.SI

Riverstone Holdings (RSTON SP) - Beneficiary Of Tech Boom; U/G To BUY

Rerating with better cleanroom growth & new capacity 

  • Upgrade Riverstone Holdings to BUY with Target Price raised 16% to SGD1.22 based on 18x FY18E EPS (+1SD to mean due to healthy EPS growth and ROE) vs. 16x previously.
  • We benchmark to a shorter 5-year P/E band instead of 10-year to better capture Riverstone’s rerated valuation since it started more aggressive expansion plans in 2014. The rerating should also be supported by stronger demand for its lucrative cleanroom glove segment. Recent rerating of Malaysia-listed peers could be a further catalyst.
  • Cleanroom glove demand will enjoy higher growth from increased demand from customers in the tech sector, while healthcare glove sales continue to expand from new market penetration.

Strong cleanroom & new capacity to offset weak USD 

  • FY17 core earnings slightly missed our estimate (3%) but were in line with consensus. Weaker USD/MYR and product mix dragged gross margin (-2.3ppt y-o-y). Nonetheless, core earnings grew 17% y-o-y, mainly driven by a 23% increase in new capacity and strong demand for cleanroom gloves.
  • While USD/MYR has declined by around 10% y-o-y in 1Q18, we believe this will be offset by strong demand for higher ASP/margin cleanroom gloves and the 18% capacity expansion starting from 3Q18. 
  • In addition, Riverstone has been able to adjust the ASP of its gloves over time to pass through cost increases. We maintain our FY18E EPS but raised FY19E EPS by 5% due to higher growth in the cleanroom glove segment.

Steady capacity expansion on track 

  • Phase 4 expansion has been completed with all seven production lines having commenced production in late-2017. 
  • Riverstone is on track for phase 5 expansion, which will add 1.4b gloves bringing total capacity to 9.0b by end-2018. As its landbank can accommodate an expansion only up to 2019, it is looking for new land for further capacity expansion.

Capturing the rerating factors 

  • We pegged our FY18E EPS to 1SD above the 5-year forward P/E mean (18x) vs. previously the 10-year (16x) to better capture Riverstone’s rerated valuation that should continue with stronger demand for cleanroom gloves. 
  • Management has turned more optimistic on the volume growth for cleanroom gloves, from +10% y-o-y to +15% y-o-y. We think there is even further upside potential based on the 20% y-o-y growth in FY17. Accordingly, we upgrade to BUY.

Swing Factors


  • Further strengthening of USD/MYR.
  • Further downside to key raw material prices, which are tied to oil prices.
  • Better-than-expected product mix upgrade and higher volume growth for high ASP, high-margin cleanroom gloves.


  • Snap back of MYR against USD.
  • Sharp rebound of Butadiene price.
  • Slower-than-expected growth of cleanroom gloves, which have higher ASP and margins.

John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2018-02-26
Maybank Kim Eng SGX Stock Analyst Report BUY Upgrade HOLD 1.22 Up 1.050