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Friday, July 31, 2015

RIVERSTONE: As good as the big boys

DBS Vickers analyst: Paul Yong, CFA (left)
As good as the big boys
» Leading nitrile glove manufacturer for the cleanroom segment, with growing ambitions to grow its healthcare segment
» Plans to double annual capacity to at least 8.2bn pieces from FY14 to FY18
» Earnings to grow at a 26% CAGR over FY14-17F, supported by the planned capacity expansion

The Business 
Dominant player in the Class 10 and Class 100 cleanroom glove segment. Riverstone is a dominant supplier of the niche cleanroom sub-segment of high-tech Class 10 and Class 100 cleanroom gloves, with a global market share of 60%. At the overall cleanroom level, Riverstone is estimated to have healthy gross margins of 38-40%, and commands a decent 6-7% of global market share. 

Beneficiary of global demand growth for healthcare gloves. MARGMA estimates that the global market for healthcare gloves is likely to grow at a rate of 8-12% p.a. on the back of increased awareness of personal protection and safety. As a relatively new entrant in healthcare gloves, Riverstone aims to grow revenue from this segment quickly to drive its earnings. 

Capacity expansion to underpin growth. To support growth in both the cleanroom and healthcare glove segments, Riverstone has announced plans to double its annual capacity to 8.2bn pieces by 2018, from its 2014 capacity. With healthy demand in both segments, Riverstone’s earnings could nearly double from RM71m in FY14 to RM141m by FY17F. 
Stock price
(24 Jul 2015)
$1.68
52-week range$0.90 – $1.735
PE FY15F17.4
Revenue FY15FRM579 m
Net profit FY15FRM100m 
Market capS$617 million
Price/Book FY15F4.0
Dividend yield FY15F2.1%
DBS Vickers data 
The Stock 
Fair value of S$1.73 based on 18x FY15 PE. Larger peers Top Glove, Hartalega, and Kossan Rubber are trading at an average of c. 22x FY15 earnings currently, but given its smaller scale, we believe Riverstone should be valued at 18x FY15F PE.

Although currently looking fairly valued, the stock could rerate to 18x FY16 PE or S$2.11 over the next 12 months as the company continues to grow its earnings.

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