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

RIVERSTONE HOLDINGS LIMITED (SGX:AP4) | SGinvestors.io 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.



Covid-19 causing a spike in demand for healthcare gloves

  • 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.


Cleanroom segment benefiting from global supply chain shift

  • 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%).


4Q19F results preview

  • 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).


Raising our FY20F EPS forecast by 4.9%

  • 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 higher Target Price of S$1.30






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



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