Wednesday, October 9, 2013

Riverstone : Key Takeaways From Site Visit (UOBKH)

Key Takeaways From Plant Visit
• A well-oiled machine. Riverstone’s manufacturing plants are running at 85% utilisation, with an annual production capacity of 3.1b gloves. As of 1H13, medical gloves made up 70% of total volume while clean-room gloves comprised 30%. Higher-margin clean-room gloves contributed 70% of gross profit in 1H13, which helped push the group’s overall margin to 26.2% (2012: 23.1%). Management sees that growth in the demand for clean-room gloves could come from the IT sector, specifically from tablet and mobile device manufacturers. Hence, it intends to maximise its production of this variant. While an 85% utilisation level is already efficient, management is targeting an optimal rate of 90%.

• Room for growth in premium medical gloves. Riverstone’s relatively smaller size allows it to cater to hospitals’ demand for more specialized gloves. Having built an excellent reputation in the healthcare industry, existing clients are now seeking to place bigger orders for the company’s products, some even as much as 800m gloves a year. Management deems it necessary to expand its capacity aggressively in order to take advantage of such volumes. This will also ensure that it continues to prudently manage customer concentration risk (no single customer takes more than 10% of total capacity).

• 1b new capacity every year from 2014-19. Six phases of 1b capacity each will be built on a 30-acre, 90-year leasehold site in Taiping, Malaysia. Phase 1 is scheduled to be ready by 3Q14. An estimated RM70m-80m of capex has been budgeted for Phase 1 and part of Phase 2. Even with an annual maintenance capex of RM10m, we think Riverstone’s strong cash generation will be able to support its near-term spending needs. Operating cash flow of RM20m in 1H13 pushed the group’s cash balance to over RM90m as at end-June. Its current debtfree position gives it a huge headroom for borrowings later on.

• Consistent 40-50% payout which management intends to maintain even with its capex requirements. The company has sufficient reserves from the exercise of its warrants and is considering alternative financing options. A 2.3 sen interim dividend for 1H13 is payable on 8 Oct 13.

Source/Extract/Excerpts/来源/转贴/摘录: UOBKH-Research,
Publish date: 08/10/13

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