Riverstone Holdings - CGS-CIMB Research 2020-02-19: Comforting Hands

RIVERSTONE HOLDINGS LIMITED (SGX:AP4)

Riverstone Holdings - Comforting Hands

Riverstone Holdings saw ramped-up healthcare glove demand from its distributors since the onset of Covid-19; orders should keep utilisation rate high through Jun.
Reacceleration of cleanroom glove sales growth will also bode well for Riverstone’s margins. We forecast EPS growth of 15.5% in FY20F (FY19F: 5%).

Valuation is attractive; Riverstone trades at c.50% discount to its Malaysian-listed peers (in terms of CY20F P/E).
Reiterate ADD with higher Target Price of S$1.30.

Our recent channel checks reveal that Riverstone Holdings (SGX:AP4) saw ramped-up demand for its healthcare gloves (c.70% revenue contribution), which should keep its utilisation rate high (above 90%) through Jun 2020.
The spike in global healthcare glove demand could also lead to more favourable supply-demand dynamics in the healthcare glove sector, and translate into an uplift in Riverstone’s healthcare segment margins in FY20F, in our view.

Stronger sales growth of cleanroom gloves (which command higher margin vs. healthcare gloves) could also continue into FY20F, as customers relocating from China to Southeast Asian countries place more orders.
With the reacceleration of cleanroom revenue growth, we estimate blended GPM to remain flattish at 20.4% in FY20F, reversing the past four years’ GPM contraction trend (a result of unfavourable revenue mix). This could result in a robust EPS growth of 15.5% y-o-y in FY20F (FY19F: 5%).

Riverstone will announce its 4Q19 results on 25 Feb. We forecast a net profit of RM38m (+6% q-o-q, +15% y-o-y) driven by a stronger demand for cleanroom gloves during the quarter. All in, we project FY19F revenue of RM992m (+8% y-o-y) and net profit of RM136m (+5% y-o-y).

We are optimistic that Riverstone can generate higher volumes for both its healthcare and cleanroom segments in FY20F. Based on our sensitivity analysis, every 1% increase in sales volume could increase Riverstone’s net profit by 1.2%. On the back of higher sales volume assumptions, we raise our FY20/21F EPS forecasts by 4.9%/3.5%.

Reiterate ADD. With our EPS forecast revision, our Target Price is lifted to S$1.30 correspondingly, still based on 17.0x FY21F P/E (RSTON’s 5-year historical mean).
See Riverstone Holdings Share Price; Riverstone Holdings Target Price; Riverstone Holdings Analyst Reports; Riverstone Holdings Dividend History; Riverstone Holdings Announcements; Riverstone Holdings Latest News.
Valuation is attractive, as the company is currently trading at a 50% discount to its Malaysian-listed peers (5- year average: 30%).
Potential re-rating catalysts include a better pricing environment resulting in stronger margins; key downside risks include volatile raw material price or forex movements.

ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-02-19

SGX Stock Analyst Report ADD MAINTAIN ADD 1.30 UP 1.250