Riverstone Holdings - CGS-CIMB Research 2020-08-06: Just A Warm-Up Stretch

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

Riverstone Holdings - Just A Warm-Up Stretch

  • Riverstone's 2Q20 net profit of RM91m (+95% q-o-q, +180% y-o-y) was above expectations, as we previously forecasted RM72m net profit for the quarter.
  • We expect ASP for both healthcare and cleanroom gloves to trend up further till end-CY20, given urgent glove demand globally.
  • We forecast sequentially stronger net profit of RM130m (+43% q-o-q, +264% y-o-y) in 3Q20.
  • Reiterate ADD, with a higher Target Price of S$5.55 (24.1x CY21 P/E).



Riverstone's 2Q20 results a strong beat

  • Riverstone (SGX:AP4)’s 2Q20 net profit of RM91m (+95% q-o-q, +180% y-o-y) was above expectations, as we had forecasted RM72m net profit for the quarter (1H was 37% of our FY20F).
  • The key surprise was stronger-than-expected ASP hike in the healthcare segment (+20% q-o-q).
  • 2Q20 topline rose 44.9% y-o-y on the back of higher glove sales volume (+26% y-o-y), rise in ASPs, and favourable US$/RM rate.
  • 2Q20 GPM widened by 13.6% pts q-o-q and 17.5% pts y-o-y due to higher selling prices, lower raw material prices, and higher economies of scale.




To see price hikes in both the healthcare and cleanroom segments

  • Management noted increased urgency in glove demand, and expects selling prices to continue on an uptrend for the remainder of CY20. Riverstone has implemented 3-tier pricing for regular customers; this allows Riverstone to charge higher prices on incremental demand beyond each customer’s usual purchase volume. c.15% of healthcare glove volume is being sold at spot price in Aug 20, and we estimate Riverstone’s healthcare glove ASP to grow at a faster pace of +25% q-o-q in 3QFY20 (2Q: +20% q-o-q).
  • Demand for cleanroom gloves has also remained strong YTD (1H20 sales volume: +30% y-o-y), and Riverstone plans to carry out its second price hike (c.10%) for this segment in Sep.


Stronger sequential earnings ahead

  • Post Malaysia’s movement control order (MCO), Riverstone was able to gradually commission new production lines, we estimate its production capacity to reach 10.5bn pcs per annum by end-FY20 (end-2Q: 9.8bn).
  • With higher sales volume and continued ASP hikes, we expect Riverstone to report sequentially stronger net profit of RM130m (+43% q-o-q, +264% y-o-y) in 3Q20.
  • We raise our FY20-22F EPS by 15.2-35.7%, mainly to account for higher ASPs, and now expect Riverstone to achieve a record RM426.5m net profit in FY20F (+227% y-o-y).


Reiterate ADD, with higher Target Price of S$5.55






ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-08-05
SGX Stock Analyst Report ADD MAINTAIN ADD 5.5 UP 3.900



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