20150805-Maybank_KERPL-Good_2Q__Positive_NDR_11页_630kb

Riverstone Holdings (RSTON SP) Summary

Core Information

• Share Price: SGD1.80
• Target Price: SGD2.12 (+18%)
• Market Cap (USD): 484M
• Average Daily Trading Volume (USD): 0.2M
• Country: Singapore
• Sector: Industrials
• Rating: BUY
• Analyst: John Cheong
• Contact: (65) 6231 5845 | johncheong@maybank-ke.com.sg

Key Financial Highlights

Revenue and Profit Growth

• Revenue (FYE Dec):
  • FY13A: MYR357.9M
  • FY14A: MYR399.3M
  • FY15E: MYR546.8M
  • FY16E: MYR647.3M
  • FY17E: MYR750.0M
• Core Net Profit (FYE Dec):
  • FY13A: MYR55.5M
  • FY14A: MYR68.0M
  • FY15E: MYR102.1M
  • FY16E: MYR118.0M
  • FY17E: MYR134.7M
• Core EPS (sen):
  • FY13A: 14.9
  • FY14A: 18.3
  • FY15E: 27.5
  • FY16E: 31.8
  • FY17E: 36.3
• Core EPS Growth (%):
  • FY13A: 24.8
  • FY14A: 22.5
  • FY15E: 50.2
  • FY16E: 15.5
  • FY17E: 14.1

Valuation Metrics

• Core P/E (x):
  • FY13A: 33.6
  • FY14A: 27.4
  • FY15E: 18.3
  • FY16E: 15.8
  • FY17E: 13.8
• P/BV (x):
  • FY13A: 5.8
  • FY14A: 5.0
  • FY15E: 4.3
  • FY16E: 3.7
  • FY17E: 3.2
• Net Dividend Yield (%):
  • FY13A: 1.4
  • FY14A: 1.4
  • FY15E: 2.2
  • FY16E: 2.5
  • FY17E: 2.9
• ROAE (%):
  • FY13A: 19.2
  • FY14A: 19.6
  • FY15E: 25.4
  • FY16E: 25.2
  • FY17E: 24.8
• ROAA (%):
  • FY13A: 15.9
  • FY14A: 16.6
  • FY15E: 21.5
  • FY16E: 21.4
  • FY17E: 21.0
• EV/EBITDA (x):
  • FY13A: 6.2
  • FY14A: 8.8
  • FY15E: 11.9
  • FY16E: 10.5
  • FY17E: 9.1

Business Performance

2Q15 Results

• Core EPS beat expectations due to currency effects and higher volume.
• 1H15 EPS forms 51% of FY15 forecast, higher than the expected 45%.
• Operating cash flows increased 9% to MYR27m.
• USD strength offset higher butadiene prices due to plant maintenance.
• Management confirmed continued strong USD, stable material prices, and dominance in the cleanroom space.
• Cleanroom product acceptance increased, with Vietnam as a notable market.
• Healthcare gloves ASP declines have moderated.

Capacity Expansion

• New capacity for FY15 is fully booked.
• Phase 2 expansion completed one month ahead of schedule (4Q15).
• Phase 3/4 expansion could be completed 1-3 months earlier than expected (4Q16/4Q17).
• EPS increases for FY15-17 are raised by 2-5% due to early capacity contribution and lower distribution & marketing costs.

Market Outlook

• Healthcare gloves supply in 2015 is 21b pieces, up 3.5x YoY.
• New demand is estimated at 14b pieces in 2016, up 7% YoY.
• Capacity expansion in FY16 is expected to be absorbed by new demand and outsourcing.

Valuation Comparison

Peer Valuation

• Riverstone's Target P/E (FY15E): 18.0x (slightly below peer average of 21x).
• Hartalega: Target P/E (FY16E) 22.0x (1 SD above its long-term mean).
• Kossan Rubber: Target P/E (FY16E) 20.0x (10% below Hartalega's P/E target).
• Top Glove: Target P/E (FY16E) 20.0x.
• Supermax: Target P/E (FY15E) 12.2x (not rated).

Growth Prospects

• Riverstone has the best growth profile in FY15 and second best in FY16, after Hartalega.
• EPS growth for FY15E: 50.2%
• EPS growth for FY16E: 15.5%

Currency and Cost Exposure

• USD exposure: 3-6% of net earnings.
• Revenue is 70-80% USD-denominated (about 50% hedged).
• Cost of sales is 40-50% MYR-denominated.
• Butadiene prices spiked in 2Q15 due to plant maintenance, but fell in July 2015.
• EPS sensitivity: 0.3% for every 1% change in raw material prices.

Market Performance

• Share price performance:
  • 1Mth: +5.9%
  • 3Mth: +39.7%
  • 12Mth: +93.0%
• Relative to index:
  • 1Mth: +10.9%
  • 3Mth: +52.0%
  • 12Mth: +101.3%

Conclusion

• Riverstone continues to perform well, with strong demand for new capacity and positive NDR feedback.
• Capacity expansion is ahead of schedule, contributing positively to EPS growth.
• Valuation remains attractive at 18x FY16 P/E, slightly below peer average due to its smaller size.
• USD strength and cost control are key drivers of performance.
• Dividend yield is expected to increase from 1.4% in FY13A to 2.9% in FY17E.

Key Data