Share Price S$0.63
Key Takeaways From Results Briefing
• Riverstone Holdings (Riverstone) is trading at 9.8x 2014F PE. Based on Bloomberg’s consensus estimate, Riverstone has a 12-month target price of S$0.76 and its earnings are set to grow at a 3-year (2012-15) CAGR of 17.9%.
Key Takeaways From 1H13 Results Briefing
• Continued gross margin improvement on higher utilisation rate of 85% and more stable raw material prices of petroleum by-products. Overall gross margin as of 1H13 improved to 26.2%
compared to 23.1% in 2012. While medical gloves made up 70% of total volume in 1H13 (vs 30% for cleanroom gloves), cleanroom gloves contributed 70% of gross profit due to its higher margins. Management intends to continue to maximise its production of cleanroom gloves in order to
sustain above-industry average margins. Strong take-up of this product is expected to come from tablet and mobile device manufacturers.
• Net margin higher despite expiry of tax incentive. Riverstone’s tax incentives expired in 2012. As such, its effective tax rate rose to 20% in 1H13 compared to the 7-12% tax range it enjoyed in the last five years. Nonetheless, it was still able to achieve a higher net margin of 15.3% (12.8% in 2012) on another record quarterly revenue, improved productivity and favourable raw material prices. Going forward, management expects the effective tax rate to average at 20% due to
lower tax incentives claimable by the group.
• Strong cash generation to support expansion. Operating cash flow of RM20m in 1H13 pushed the group’s cash balance to over RM90m as at end-June. Majority of these funds will be funneled to cover capex needs of more than RM80m from now until mid-14. A new production line will be added to Riverstone’s existing factory in Thailand while a new factory will be built on its 30-acre site in Taiping, Malaysia. These will add 90m and 1b of new capacity in 2013 and 2014 respectively,
bringing the group’s total capacity to 4.2b gloves by end-14 (+35% from end-12).
• 2.3 sen interim dividend declared for 1H13. Management intends to maintain a full-year payout of 40-50%, consistent with its historical payout since 2007.
• Key risks for the group include commodity price movements, foreign exchange volatility (US$/RM) and industry competition.
Publish date: 12/08/13