malaysia

Excerpt from Q&A at FY22 investor briefing.

Below we excerpt CGS-CIMB report:

Analyst: Ong Khang Chuen, CFA
Another round of bumper dividends

4Q22: Another round of bumper dividends

Riverstone Holdings’ (RSTON) 4Q22 net profit fell to RM42m (-34% qoq, -62% yoy) with further normalisation of ASPs, but continues to outperform larger scale Malaysian-listed peers (Hartalega, Kossan and Supermax all reported net loss in that quarter), given its differentiated focus on cleanroom gloves.

Results were in line with expectations, with FY22 net profit of RM314m (-78% yoy) coming in at 98%/104% of our/Bloomberg consensus’ forecasts. 

Operating landscape remains tough for healthcare gloves
Healthcare glove ASPs remain on a decline due to industry oversupply, with no signs of easing in the near term. RSTON’s healthcare segment GPM was only 5% in 4Q22 (vs. 3Q22: 10%) — mainly supported by higher priced specialty gloves; generic glove products are sold below cost across the industry as players look to cover overheads.

Despite rising cost pressures, glove players are finding it difficult to raise prices to sufficiently cover the impact.

RSTON is actively modifying its production lines to cater for specialty/customised products, which are usually in smaller order volumes and require nimble manufacturing capabilities.

Currently, specialty products make up c.20% of RSTON’s healthcare volumes.

Shifting focus towards cleanroom segment advancement
RSTON continues to see a steady outlook for its cleanroom segment and expects ASPs to remain resilient at c.US$100 (per 1k pieces). Given the weak healthcare glove outlook, management plans to broaden its cleanroom glove offerings (from its niche of higher-end Class 10 and Class 100 gloves) to include more lower-end products, such as Class 1000 gloves.

This would be enabled by its cleanroom processing capacity expansion to 2.5bn gloves p.a., which is expected to come onstream by mid-CY23F. According to RSTON, such gloves can command c.US$70 per carton selling price and c.40% GPM currently.

Reiterate Hold. While we think that fundamentals may remain weak in FY23F given the competitive environment in the glove industry, we believe downside risks can be capped with its strong cash position and plans to distribute excess cash on its balance sheet (end-Dec 22: net cash of RM1.07bn). Ong Khang Chuen, CFAWe lower our FY23-24F EPS by 11-26% to account for lower ASP assumptions. Our TP is lowered to S$0.60 as we roll over our valuation base year, pegged to 14.5x CY24F P/E (1 s.d. below 5-year pre-Covid historical mean). Upside risks include higher dividend payout and continued resilience in cleanroom demand; downside risks include a prolonged weakness in healthcare glove ASPs.

Full report here. 

Excerpts from CGS-CIMB report
Analyst: Andrea Choong

Silverlake Axis Ltd
More digital upgrades to come

2QFY6/23 below our estimates due to higher forex loss and opex

Silverlake Axis’ (SILV) 2QFY6/23 core net profit of RM42.1m (-27% qoq, -29% yoy) was 20%/18% below our/consensus’ estimates.

1HFY6/23 accounted for 46%/47% of our/consensus’ FY23F forecasts. Although 2QFY6/23 gross profit tracked in line with our estimates, higher foreign currency exchange losses on cash reserves as a result of the depreciation of US$ against RM, staff, and strategic investment costs, resulted in the miss.

While total opex rose 3% qoq (+19% yoy), SILV’s expense-over-revenue ratio stayed broadly stable qoq at c.26% in 2QFY6/23, given its strong topline growth. Albeit slight, SILV benefitted from higher net financing income due to the rising interest rate environment.

Management confident to achieve RM800m FY6/23F revenue target
SILV closed deals worth RM146m in 2QFY6/23, bringing 1HFY6/23’s total deal closure to RM275m (FY6/22: RM508m). Its deal pipeline is robust at RM1.8bn, with RM275m in the final stages of negotiation/undergoing contracting, according to management.

Silverlake founder and executive chairman Goh Peng Ooi.Going into 2HFY6/23, SILV has a secured backlog of c.RM350m.

Hence, management is confident of achieving its RM800m revenue target in FY6/23F. By segment, stronger contributions from new contracts that have become operational boosted maintenance and services revenue in 2QFY23, offsetting softer licensing income.

Of the new deals signed in 2QFY6/23, two were with new clients in Thailand and one in UAE (two Symmetry and one Mobius deal).

While these deal wins are positive, we highlight that a ramp-up of Mobius deals may result in GPM hovering around current levels (c.58%) in the medium term, given the larger staff training costs and marketing expenses involved in the early stages, before trending back up towards c.60% when the product matures.

Despite the forex distortion, SILV recorded 1HFY6/23 NPM margin of c.25% — in line with its long-term target of 25%.

Reiterate Add, with TP of S$0.44 to adjust for costs Andrea Choong, analyst.Although SILV’s proportion of revenue delivered via cloud computing dipped to c.11% of revenue in 1HFY6/23 (1HFY6/22: c.13%), we believe that this should improve as Mobius gains traction across the region, especially in Thailand, following its first deal win (and implementation) there. We tweak FY23-25F EPS to factor in increased opex. Nonetheless, we think that strong yoy earnings growth across the banking sector could flow into stronger digitalisation/investment budgets, and catalyse SILV’s deal win momentum. Downside risks are execution risks in rolling out Mobius on a large scale. Our TP is pegged to 16x CY23F P/E, 0.5 s.d. below mean.

Full report here