Excerpts from CGS-CIMB report

Analyst: ONG Khang Chuen, CFA

■ RSTON saw ramped-up healthcare glove demand from its distributors since the onset of Covid-19; orders should keep utilisation rate high through Jun. 

Riverstone Holdings

Share price: 
$1.07

Target: 
$1.30

■ Reacceleration of cleanroom glove sales growth will also bode well for RSTON’s margins. We forecast EPS growth of 15.5% in FY20F (FY19F: 5%).

■ Valuation is attractive; RSTON trades at c.50% discount to its Malaysian-listed peers (in terms of CY20F P/E). Reiterate Add with higher TP of S$1.30.


Covid-19 causing a spike in demand for healthcare gloves
Our recent channel checks reveal that Riverstone Holdings (RSTON) saw ramped-up demand for its healthcare gloves (c.70% revenue contribution), which should keep its utilisation rate high (above 90%) through Jun 2020.

The spike in global healthcare glove demand could also lead to more favourable supply-demand dynamics in the healthcare glove sector, and translate into an uplift in RSTON’s healthcare segment margins in FY20F, in our view.

WongTeekSon2.19Wong Teek Son, executive chairman of Riverstone Holdings. NextInsight file photo. Cleanroom segment benefiting from global supply chain shift
Stronger sales growth of cleanroom gloves (which command higher margin vs. healthcare gloves) could also continue into FY20F, as customers relocating from China to Southeast Asian countries place more orders.

With the reacceleration of cleanroom revenue growth, we estimate blended GPM to remain flattish at 20.4% in FY20F, reversing the past four years’ GPM contraction trend (a result of unfavourable revenue mix).

This could result in a robust EPS growth of 15.5% yoy in FY20F (FY19F: 5%).

4Q19F results preview
RSTON will announce its 4Q19 results on 25 Feb.

We forecast a net profit of RM38m (+6% qoq, +15% yoy) driven by a stronger demand for cleanroom gloves during the quarter. All in, we project FY19F revenue of RM992m (+8% yoy) and net profit of RM136m (+5% yoy).

Raising our FY20F EPS forecast by 4.9%
We are optimistic that RSTON can generate higher volumes for both its healthcare and cleanroom segments in FY20F.

Based on our sensitivity analysis, every 1% increase in sales volume could increase Riverstone’s net profit by 1.2%. On the back of higher sales volume assumptions, we raise our FY20/21F EPS forecasts by 4.9%/3.5%.

Reiterate Add with higher TP of S$1.30 Reiterate Add.
OngKhangChuenOng Khang Chuen, CFAWith our EPS forecast revision, our TP is lifted to S$1.30 correspondingly, still based on 17.0x FY21F P/E (RSTON’s 5-year historical mean).

Valuation is attractive, as the company is currently trading at a 50% discount to its Malaysian-listed peers (5- year average: 30%).

Potential re-rating catalysts include a better pricing environment resulting in stronger margins; key downside risks include volatile raw material price or forex movements.

 
Full report here. 


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