Riverstone Holdings - CGS-CIMB Research 2020-02-26: Robust Growth Ahead


Riverstone Holdings - Robust Growth Ahead

  • Riverstone Holdings (SGX:AP4)'s 4Q19 net profit of RM32m (-10% q-o-q, -3% y-o-y) was a slight miss, mainly due to higher tax expenses.
  • Riverstone should see a much stronger FY20F, with robust demand for both its healthcare and cleanroom gloves.
  • We forecast 20.6% EPS growth in FY20F (FY19: 0.6%). Reiterate ADD with an unchanged Target Price of S$1.30 (based on 5-year historical average P/E).

4Q19 results a slight miss

  • Riverstone reported 4Q19 net profit of RM32m (-10% q-o-q, -3% y-o-y). FY19 net profit came in at 96%/97% of our/Bloomberg consensus forecasts, a slight miss. The key drag was higher tax expense, due to lower reinvestment allowance as Riverstone delayed commissioning of its new production capacity from 2H19 to 1H20.
  • Nevertheless, core operations remained strong, in our view. Both GPM and OPM showed y-o-y expansion of 1.5% pts and 1.1% pts respectively in 4Q19 (reversing past four years' contraction trend), due to stronger sales of cleanroom gloves during the quarter.

Robust glove demand in FY20F

  • Management is positive on FY20F outlook, with strong demand for both healthcare and cleanroom gloves. Management sees clear order visibility for healthcare gloves through July amid the Covid-19 outbreak. The cleanroom segment is also enjoying healthy demand from semiconductor and pharmaceutical sectors.
  • Riverstone is in the midst of commissioning new production lines (capacity +16% y-o-y), and gradually lifting production line speed to cope with the surge in demand. We forecast sales volume to grow 20% y-o-y in FY20F, with a stable product mix (volume split: 85% healthcare, 15% cleanroom).

Stronger margin outlook

  • We forecast GPM to expand 0.3% pt y-o-y to 20.4% in FY20F.
  • We believe the spike in global healthcare glove demand could lead to more favourable supply-demand dynamics in the healthcare glove sector, and translate into an increase in Riverstone’s healthcare segment margins in FY20F.
  • Cleanroom margins should also benefit from the lower raw material prices.
  • Overall, we forecast stronger FY20F EPS growth of 20.6% (FY19: 0.6%).

Reiterate ADD and Target Price of S$1.30

ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-02-26
SGX Stock Analyst Report ADD MAINTAIN ADD 1.300 SAME 1.300