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.
Showing posts with label Riverstone. Show all posts
Showing posts with label Riverstone. Show all posts
Friday, 29 May 2015
Wednesday, 17 December 2014
Riverstone Holdings
Kim Eng on 16 Dec 2014
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.
- 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.
Tuesday, 25 November 2014
Riverstone Holdings
Kim Eng on 25 Nov 2014
We hosted Riverstone to an NDR with institutional clients in Malaysia. Most were already familiar with the healthcare glove industry and showed keen interest in Riverstone’s dominance of the high-end cleanroom glove market. Management shared that its close relationships with end-users via direct supplies, ability to customise solutions, best-in-class product features and stringent qualification formed strong barriers to entry. Better-than-expected penetration of the equally profitable lower-end cleanroom glove market is expected to boost its growth. This could provide upside to our forecasts.
Healthcare segment to thrive
At a time of aggressive capacity expansion by all the major healthcare glove makers in Malaysia, management believes it can sustain its ASPs and margins through: 1) constant customisation and innovation to offer product differentiation; and 2) serving quality rather than cost-conscious customers. Higher elongation gloves for better comfort and low-chemical-content gloves that reduce
allergic reactions are examples of its differentiated products. Undervalued with strong catalysts
Riverstone’s 12x FY15E EPS trails peers’ 15x average, although it is has the strongest EPS growth prospect. Maintain BUY with SGD1.21 TP, at 15x FY15E EPS, on par with the peer average. We expect catalysts from better-than-expected cleanroom glove volume, with higher ASPs and margins.
- Many investors learnt of cleanroom gloves for first time & Riverstone’s dominance of this lucrative segment.
- We remain optimistic. Customised healthcare gloves for quality-conscious customers should remain competitive too.
- Maintain BUY & SGD1.21 TP, at 15x FY15E EPS. Catalysts from higher-than-expected cleanroom glove volume.
We hosted Riverstone to an NDR with institutional clients in Malaysia. Most were already familiar with the healthcare glove industry and showed keen interest in Riverstone’s dominance of the high-end cleanroom glove market. Management shared that its close relationships with end-users via direct supplies, ability to customise solutions, best-in-class product features and stringent qualification formed strong barriers to entry. Better-than-expected penetration of the equally profitable lower-end cleanroom glove market is expected to boost its growth. This could provide upside to our forecasts.
Healthcare segment to thrive
At a time of aggressive capacity expansion by all the major healthcare glove makers in Malaysia, management believes it can sustain its ASPs and margins through: 1) constant customisation and innovation to offer product differentiation; and 2) serving quality rather than cost-conscious customers. Higher elongation gloves for better comfort and low-chemical-content gloves that reduce
allergic reactions are examples of its differentiated products. Undervalued with strong catalysts
Riverstone’s 12x FY15E EPS trails peers’ 15x average, although it is has the strongest EPS growth prospect. Maintain BUY with SGD1.21 TP, at 15x FY15E EPS, on par with the peer average. We expect catalysts from better-than-expected cleanroom glove volume, with higher ASPs and margins.
Tuesday, 11 November 2014
Riverstone Holdings
Kim Eng on 5 Nov 2014
Management says its largest-ever capacity expansion for 3b gloves in the next three years is making progress. Phase 1 will add 1b gloves to its existing capacity of 3.2b gloves. Full capacity is expected by end-FY14. Riverstone expects to penetrate the fast-growing nitrile healthcare glove segment further while maintaining its leadership in lucrative cleanroom gloves. Backed by full orders for its new capacity, we see little downside risk to our 19% EPS growth forecast for FY15E.
Results defied constraints
Even with a lack of new capacity, Riverstone was able to book 9% revenue growth YoY in 3Q14 through better efficiency to increase output. Gross margin dipped 2ppts YoY following an initial ramp of its new production capacity and a 19% gas-price increase in May. It was able to pass on the gas-price increase to customers in Jun-Jul. Since Riverstone uses 50% natural gas and 50% biomass, it is partially insulated from gas-price increases. We raise our FY14E EPS by 1% to reflect lower other expenses.
Undervalued; BUY
Riverstone’s 12x FY15E P/E trails peers’ 15x average although it is on track for the strongest growth, highest dividend yields and second-highest margins, in our view. Maintain BUY with no change to our SGD1.21 TP, based on 15x FY15E EPS, its peer average.
- 9M14 met expectations at 75.6/76.5% of consensus and our FY14E.
- FY15E set to be record year from Phase 1 of new capacity for 1b gloves.
- Maintain BUY & SGD1.21 TP, at 15x FY15E EPS. Catalysts from further market penetration.
Management says its largest-ever capacity expansion for 3b gloves in the next three years is making progress. Phase 1 will add 1b gloves to its existing capacity of 3.2b gloves. Full capacity is expected by end-FY14. Riverstone expects to penetrate the fast-growing nitrile healthcare glove segment further while maintaining its leadership in lucrative cleanroom gloves. Backed by full orders for its new capacity, we see little downside risk to our 19% EPS growth forecast for FY15E.
Results defied constraints
Even with a lack of new capacity, Riverstone was able to book 9% revenue growth YoY in 3Q14 through better efficiency to increase output. Gross margin dipped 2ppts YoY following an initial ramp of its new production capacity and a 19% gas-price increase in May. It was able to pass on the gas-price increase to customers in Jun-Jul. Since Riverstone uses 50% natural gas and 50% biomass, it is partially insulated from gas-price increases. We raise our FY14E EPS by 1% to reflect lower other expenses.
Undervalued; BUY
Riverstone’s 12x FY15E P/E trails peers’ 15x average although it is on track for the strongest growth, highest dividend yields and second-highest margins, in our view. Maintain BUY with no change to our SGD1.21 TP, based on 15x FY15E EPS, its peer average.
Thursday, 6 November 2014
Riverstone Holdings
Kim Eng on 6 Nov 2014
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.
- 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.
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.
Thursday, 11 September 2014
Riverstone Holding
UOBKayhian, 11 Sep 2014
FY14F PE (x): 14.4
FY15F PE (x): 12.1
Expansion on track. Management highlighted that its capacity expansion is on track,
with the first phase (consisting of 1.0b gloves per annum) to be completed by end-14.
The first two lines will be commissioned by end-September, whilst the remainder will be
commissioned in the remaining months. The added capacity will boost its production
capacity from 3.2b gloves to 4.2b gloves (+31%) by end-14 but the full impact on
earnings will only be felt in 2015F.
On track to deliver 3-year net profit CAGR of 16%. We project a 3-year net profit CAGR
of 15% in 2013-16. Our model factors in gross margin assumptions of 26-28% to
account for the potential margin impact from the change in product mix. We have also
assumed new borrowings of RM20m annually beginning 2H15 as funding for phases 3-
5 of the group’s new factory.
On our conviction BUY list. We remain bullish with a target price of S$1.14, pegged at
the sector’s historical mean PE of 14x to our 2015F EPS of 8.4 S cents. Valuations are
undemanding at 12x 2015F PE despite the group’s higher margins and comparable
ROE vs peers’. Our target PE is also in line with the mean transaction multiple of 13.7x
for recent M&As within the glove industry
FY14F PE (x): 14.4
FY15F PE (x): 12.1
Expansion on track. Management highlighted that its capacity expansion is on track,
with the first phase (consisting of 1.0b gloves per annum) to be completed by end-14.
The first two lines will be commissioned by end-September, whilst the remainder will be
commissioned in the remaining months. The added capacity will boost its production
capacity from 3.2b gloves to 4.2b gloves (+31%) by end-14 but the full impact on
earnings will only be felt in 2015F.
On track to deliver 3-year net profit CAGR of 16%. We project a 3-year net profit CAGR
of 15% in 2013-16. Our model factors in gross margin assumptions of 26-28% to
account for the potential margin impact from the change in product mix. We have also
assumed new borrowings of RM20m annually beginning 2H15 as funding for phases 3-
5 of the group’s new factory.
On our conviction BUY list. We remain bullish with a target price of S$1.14, pegged at
the sector’s historical mean PE of 14x to our 2015F EPS of 8.4 S cents. Valuations are
undemanding at 12x 2015F PE despite the group’s higher margins and comparable
ROE vs peers’. Our target PE is also in line with the mean transaction multiple of 13.7x
for recent M&As within the glove industry
Monday, 26 May 2014
Riverstone Holdings
Uobkayhian on 26 May 2014
FY14F PE (x): 13.0
FY15F PE (x): 10.9
An undervalued glove maker trading at an attractive 11x PE vs the sector’s historical
mean of 14x. Its niche in premium-priced cleanroom gloves and customized healthcare
gloves allows for higher margins. Some 5b pieces in new capacity will more than double
production capacity by 2018. Solid balance sheet with no debt and strong cash flow.
Maintain BUY. Target price: S$1.14.
Mid-cap highlight. We outline the key investment highlights for Riverstone Holdings
(Riverstone) as part of our mid-cap strategy. Riverstone specialises in the production of
nitrile gloves. It is the leading global supplier of high-tech cleanroom gloves with an
estimated 60% share in the hard disk drive (HDD) market. It also manufactures
premium customised healthcare gloves. Additionally, the group produces other
cleanroom consumables such as finger cots, packaging materials and face masks.
Currently, Riverstone operates five manufacturing facilities in Malaysia (three), Thailand
(one) and China (one), with a combined annual production capacity of 3.1b gloves.
Undervalued glove maker, BUY with target price of S$1.14, pegged at the sector’s
historical mean PE of 14x to our 2015F EPS of 8.2 S cents. The stock currently trades
at an attractive 11x PE despite the group’s higher margins and comparable ROE vs
peers. Our target PE is also in line with the mean transaction multiple of 13.7x for recent
M&As within the glove-making industry
FY14F PE (x): 13.0
FY15F PE (x): 10.9
An undervalued glove maker trading at an attractive 11x PE vs the sector’s historical
mean of 14x. Its niche in premium-priced cleanroom gloves and customized healthcare
gloves allows for higher margins. Some 5b pieces in new capacity will more than double
production capacity by 2018. Solid balance sheet with no debt and strong cash flow.
Maintain BUY. Target price: S$1.14.
Mid-cap highlight. We outline the key investment highlights for Riverstone Holdings
(Riverstone) as part of our mid-cap strategy. Riverstone specialises in the production of
nitrile gloves. It is the leading global supplier of high-tech cleanroom gloves with an
estimated 60% share in the hard disk drive (HDD) market. It also manufactures
premium customised healthcare gloves. Additionally, the group produces other
cleanroom consumables such as finger cots, packaging materials and face masks.
Currently, Riverstone operates five manufacturing facilities in Malaysia (three), Thailand
(one) and China (one), with a combined annual production capacity of 3.1b gloves.
Undervalued glove maker, BUY with target price of S$1.14, pegged at the sector’s
historical mean PE of 14x to our 2015F EPS of 8.2 S cents. The stock currently trades
at an attractive 11x PE despite the group’s higher margins and comparable ROE vs
peers. Our target PE is also in line with the mean transaction multiple of 13.7x for recent
M&As within the glove-making industry
Friday, 9 May 2014
Riverstone Holdings
Voyage Research, May 8
RIVERSTONE Holdings (Riverstone) recorded another set of healthy results on the back of impressive gross margin and effective cost control. We revised the FY14 revenue downwards in view of the lower production due to the water rationing and lower selling prices due to weaker raw material prices.
We also lowered our market risk premium slightly in view of the management's moves to increase sales. Maintain "invest" with an intrinsic value of S$0.925.
INVEST
Thursday, 6 March 2014
Riverstone Holdings
CIMB Research, March 4
TOGETHER with its glove customisation capability, Riverstone is set to capture a larger piece of the disposable gloves market. We initiate coverage with an "add" rating and target price of S$0.90, based on 12.1 times (one standard deviation above historical average) CY2015 PE.
Nitrile gloves have become increasingly preferred over traditional latex due to the elimination of latex allergies and their lighter weight. As glove makers around the world switch focus from latex to nitrile, nitrile has been Riverstone's specialty from the start. In particular, it is a dominant player in the niche high-end clean-room gloves segment, supplying about 60 per cent of global demand.
With decades of expertise and product development under its belt, it has the technology and experience to cater to the ever-developing needs of its customers, particularly those operating in demanding clean-room environments.
Raw materials for its gloves like latex and butadiene have seen a benign pricing environment recently. This ought to support Riverstone's margins even as it boosts production when new capacity comes in.
Improved manufacturing efficiency could also result from the greater product specialisation enabled when more production lines start running.
Riverstone produces medical gloves and has widened its range of clean-room gloves to cater to more segments within the clean-room industry. We see its diversified sources of revenue as offering visible and dependable revenue growth.
Estimated dividend yields for CY2014-15 are 3.3-3.7 per cent, above its peers.
ADD
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