RIVERSTONE: Record earnings (RM129.3 m) in FY17!

Riverstone Holdings, after four successive years of expanding its production capacity, has proved a couple of things, one of which is that it has no problem finding customers for its output. Year Added capacity Final Capacity 2013 -- 3.1 billion 2014 +1.1 billion 4.2 billion 2015 +1 billion 5.2 billion 2016 +1 billion 6.2 billion 2017 +1.4 billion 7.6 billion 2018F +1.4 billion 9.0 billion 2019F +1.4 billion 10.4 billion The Malaysian-based glove manufacturer listed on the Singapore Exchange will expand capacity again this year and next year which will raise the capacity to 10.4 billion gloves a year. This is expected to drive earnings growth, following record earnings in FY2017 of RM129.3 million (7.4% y-o-y). This forms the backdrop for three covering analysts to have a "buy" call on Riverstone stock. Recently, DBS Vickers and Maybank Kim Eng upgraded it from 'hold" to "buy" while CIMB maintained its "add" call. For more on the FY17 results, see the Powerpoint materials here. Newly-produced gloves being stripped from moulds for packing at Riverstone's factory in Taiping. NextInsight file photo

Excerpts from analysts' reports:

John Cheong, CFA (Maybank Kim Eng): Rerating w/better cleanroom growth & new capacity. 
Upgrade to BUY with TP raised 16% to SGD1.22 based on 18x FY18E EPS (+1SD to mean due to healthy EPS growth and ROE) vs. 16x previously.  

The rerating should also be supported by stronger demand for its lucrative cleanroom glove segment. Recent rerating of Malaysia-listed peers could be a further catalyst.

Cleanroom glove demand will enjoy higher growth from increased demand from customers in the tech sector, while healthcare glove sales continue to expand from new market penetration. 

Carmen Tay (DBS Vickers): Upgrade to BUY with TP of S$1.27 as we see earnings growing on strong cleanroom ramp-up.
A global market leader in niche Class 10 and Class 100 cleanroom gloves, Riverstone’s edge in the high-tech cleanroom segment sets it apart from the bigger boys.

Given intense competition in the healthcare space, we see value in Riverstone’s growing cleanroom business – which allows the group to command consistently higher margins vs peers (16% vs peers’ c.10-15% in FY17).

With new cleanroom facilities set to kick in from 2Q18, cleanroom capacity is expected to grow by c.33% to at least 2bn gloves p.a. The ramp-up on these new capacities should help drive higher growth in cleanroom gloves vis-à-vis the lower-margin healthcare business, allowing Riverstone’s earnings growth of c.16% to catch up with larger peers’ c.17%.  (Full report here)

Executive Chairman & CEO Wong Teek Son (centre) speaks with analysts after a briefing. CFO Tan Wang Thing is on the right while Financial PR director Tok Chong Yap is on the far left.  NextInsight file photo.

Colin Tan (CGS-CIMB): Maintain Add with a higher TP of S$1.28.

We trim our FY18-19F EPS by 10.0-11.1% to factor in weakening US$ against RM and conservatively maintain our 24.0% gross margin projections to reflect high raw material prices. Approximately 80% of its sales are in US$ and c.40%-50% of its cost of sales is in US$.

Our TP is raised to S$1.28 as we roll over our valuation to FY19, based on a higher 18.6x P/E multiple (sector average excluding Hartalega; 16.3x previously). Maintain Add. Key risks include higher production costs.

Watch video of our visit to Riverstone's factory in 2016 -->