Thursday 6 November 2014

Riverstone Holdings

Kim Eng on 6 Nov 2014

  • Keen interest in company’s capacity expansion and dominance of lucrative cleanroom gloves.
  • Good earnings visibility from long-term order commitments for new capacity and strong product demand.
  • Maintain BUY & SGD1.21 TP (15x FY15E EPS). Catalysts from faster capacity expansion and above-average cleanroom-glove growth.
New capacity and products to lift growth
In a recent NDR for our institutional clients, management reaffirmed orders for its new capacity. It has secured long-term commitments from several customers for four of its six production lines. This leaves two to cater to smaller orders and customised products. For the moment, Riverstone is able to cherry-pick customers offering the best prices and payment terms due to strong demand for its superior products and low supply volume vs peers. In addition, its polymer-coated gloves for tablet and flat-panel display manufacturers are gaining traction. There is ample scope for growth, according to management, since these users are in the early adoption phase. Stronger growth is expected once customers are satisfied with their quality consistency. Management also shared that its newly-developed halogen-free cleanroom gloves have been approved by a customer.

Speeding up expansion; Maintain BUY
Following the successful execution of its first-phase expansion, management plans to speed up machinery installation for its second phase. It hopes to commence production in early 3Q15, earlier than our 4Q15 expectation. Maintain BUY and SGD1.21 TP, at 15x FY15E EPS, its peer average.

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