Riverstone Holdings

UOBKayhian on 27 May 2015

FY15F PE (x): 15.9
FY16F PE (x): 12.8

Global leader in the high barrier-to-entry, premium-priced cleanroom segment. Cleanroom gloves are made for special industrial applications conducted in a critical environment. It mainly serves the high-tech electronics manufacturing sector. Due to the advanced technical capabilities involved, cleanroom gloves typically command ASPs that are 2.5-3x higher than healthcare gloves. Barriers to entry are very high due to the highly specialised nature. Riverstone’s long-standing blue-chip customers include Western Digital, Seagate and Hitachi, some of whom source their needs solely from the group. We project a 3-year net profit CAGR of 18.8% in 2014-17 on the back of: a) strong take-up of its cleanroom gloves in the tablet and mobile segment, b) resilient demand from the healthcare sector, and c) production capacity expansion. In addition, while the healthcare glove industry remains competitive, low raw material prices will protect margins. We see room for further upside from better-than-expected ASPs, margins and utilisation. Undervalued glove maker, BUY with target price of S$1.59 (from S$1.51), pegged at the sector’s historical mean PE of 14.2x applied to our 2016F EPS of 11.2 S cents. Given the higher ROE and yield, RSTON is trading attractively at 2015F and 2016F PE of 15.9x and 12.8x, vs peers’ average of 17.9x and 15.9x respectively.