- 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.
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