- 70-80% of revenue & 40-50% of cost of sales in USD. Strengthening USD/MYR to benefit Riverstone.
- Cheaper crude & natural rubber to keep input prices in check. Benefits passed on but raise EPS by 1-2% for higher cleanroom glove volume.
- Maintain BUY & SGD1.21 TP, at 15x FY15E EPS. Catalysts from higher-than-expected cleanroom glove volume.
Riverstone is expected to benefit from a strengthening USD/MYR as 70-80% of its revenue (c.50% hedged) and 40-50% of its cost of sales (73% of revenue) is denominated in USD. This translates into
positive net exposure of 3-6%, where its PBT can gain or lose 0.3- 0.6% for every 1% movement in USD, ceteris paribus. While the USD/MYR has strengthened 4.1% YoY in 4Q14E, the earnings impact is minor as the benefits are usually passed on to its customers. Still, we raise FY14E-16E PATMI by 0.7-1.6% for higher cleanroom glove volumes, which lift overall ASPs and margins. Our earlier assumptions were too conservative after speaking to management. …and cheaper raw materials; Maintain BUY
About 90% of Riverstone’s gloves are nitrile gloves. Its main raw material, nitrile butadiene, is a substitute for latex and by-product of crude oil/natural gas. Butadiene prices are expected to remain
low, along with latex and crude oil prices. Latex prices are expected to stay low in 2015 on account of a natural-rubber surplus. We estimate an earnings sensitivity of 0.4% for every 1% change in its raw-material prices. However, the benefits are usually passed on to customers. We also see limited downside for butadiene prices due to tight supplies.
Riverstone’s 12x FY15E EPS trails peers’ 15x average, although it has the strongest EPS growth prospects. Maintain BUY and SGD1.21 TP, at 15x FY15E EPS, on par with its peer average.
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