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

Riverstone Holdings - CGS-CIMB Research 2018-08-07: Solid 2q18; Supported By Lower Raw Material Costs 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



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