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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
- Reiterate ADD. We make no changes to our EPS forecasts. Our Target Price is kept at S$1.30, still based on 17.0x FY21F P/E (RSTON’s 5-year historical mean).
- We believe valuation is attractive, as Riverstone is currently trading at a 47% discount to its Malaysian-listed peers (5-year average: 30%).
- See Riverstone Holdings Share Price; Riverstone Holdings Target Price; Riverstone Holdings Analyst Reports; Riverstone Holdings Dividend History; Riverstone Holdings Announcements; Riverstone Holdings Latest News.
- Potential re-rating catalysts include better pricing environment resulting in stronger margins; key downside risks include volatile raw material price or FX ovements.
ONG Khang Chuen CFA
CGS-CIMB Research
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https://www.cgs-cimb.com
2020-02-26
SGX Stock
Analyst Report
1.300
SAME
1.300