Riverstone Holdings - CGS-CIMB Research 2018-08-07: Solid 2Q18; Supported By Lower Raw Material Costs

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RIVERSTONE HOLDINGS LIMITED SGX:AP4

Riverstone Holdings - Solid 2Q18; Supported By Lower Raw Material Costs

• Riverstone’s 2Q/1H18 net profit of Rm33.6m/Rm64.6m in line with expectations with 1H18 forming 45%/46% of our/consensus full-year forecasts. Historically, 1H is weaker.
• Gross margin stable at 22.5% in 2Q18 on a q-o-q basis, vs. 22.3% in 1Q18.
• Maintain ADD with Target Price of S$1.28. 
• Riverstone’s valuation remains undemanding at 14.1x FY19F P/E, c.40% discount to the Malaysian glove makers.

Gross profit 10.6% higher y-o-y on lower raw material costs

• Riverstone’s 2Q18 gross margin expanded 2% pts to 22.5%, compared to 20.5% in 2Q17. This was mainly attributed to lower material costs.
• On a q-o-q basis, gross margin slightly improved from 22.3% in 1Q18.

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Quarterly sales at all-time high

• Despite higher sales volume, 2Q18 revenue was flat at Rm214.2m as majority of Riverstone’s sales is denominated in US$. RM strengthened against the US$ during 2Q18 vs. 2Q17.
• Quarterly revenue was at all-time high in 2Q18, surpassing previous high of Rm213.2m in 2Q17.
• Global market share at c.40% for customised cleanroom gloves.

Boosting annual capacity to 9.0bn gloves by year-end

• The phase 5 expansion plan is progressively being carried out in Taiping, Perak, Malaysia. When completed, Riverstone will add 1.4bn gloves to its total annual capacity by Dec-2018.
• Riverstone plans to further boost its annual capacity to 10.4bn gloves by end-2019.

Healthy net cash position with 1.3sen DPS for 2Q18

• Riverstone remained in a net cash position of Rm70.5m as at end-2Q18, with borrowing levels low at Rm22m.
• Robust balance sheet and strong positive operating cash flows should allow Riverstone to carry out its expansion plans, in our view.
• It declared an interim dividend of 1.30 sen/share. We expect Riverstone to maintain 40% payout with the bulk of dividends to be declared in 4Q18F.

Maintain ADD with Target Price of S$1.28.

• We expect Riverstone to deliver 11%-16% EPS growth in FY18-19F on capacity expansion and stable margins.
• Riverstone’s valuation remains undemanding at 14.5x FY19F P/E, trading at c.40% discount to its Malaysian peers’ average of 23.8x (20.5x ex-Hartalega).
• Maintain ADD with an unchanged Target Price of S$1.28, pegged to 16.7x FY19F P/E, representing c.19% discount to its peers’ average (ex-Hartalega).
• Potential re-rating catalysts include better gross margins ahead. 
• Downside risks include increases in raw material costs.

Colin TAN CGS-CIMB Research | https://research.itradecimb.com/ 2018-08-07

SGX Stock Analyst Report ADD Maintain ADD 1.280 Same 1.280