Riverstone Holdings (RSTON SP) (Maintained) - RHBInvest · See important disclosures at the end of this report Powered by EFATM Platform 1 Company Update, 29 September 2014 Riverstone

See important disclosures at the end of this report Powered by EFATM

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Company Update, 29 September 2014

Riverstone Holdings (RSTON SP) Buy (Maintained) Consumer Non-cyclical - Rubber Products Target Price: SGD1.15

Market Cap: USD273m Price: SGD0.94

Capacity Set To Expand

Macro

2.00

Risks

1.00

Growth

3.00

Value

2.00

94

100

105

111

116

122

127

133

138

144

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

Riverstone Holdings (RSTON SP)Price Close Relative to Straits Times Index (RHS)

1

2

3

4

5

6

Se

p-1

3

No

v-1

3

Ja

n-1

4

Ap

r-1

4

Ju

n-1

4

Au

g-1

4

Vo

l m

Source: Bloomberg

Avg Turnover (SGD/USD) 0.23m/0.19m

Cons. Upside (%) 10.6

Upside (%) 23.0

52-wk Price low/high (SGD) 0.68 - 1.02

Free float (%) 32

Share outstanding (m) 371

Shareholders (%)

Mr Wong Teek Son 50.8

Mr Lee Wai Keong 13.0

Share Performance (%)

YTD 1m 3m 6m 12m

Absolute 29.0 (1.6) (1.6) 15.4 33.6

Relative 25.1 (0.6) (2.0) 10.7 30.6

Shariah compliant

Jarick Seet +65 6232 3891

[email protected]

Terence Wong CFA +65 6232 3896

[email protected]

Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F

Total turnover (MYRm) 273 310 358 401 481

Reported net profit (MYRm) 38.6 39.7 58.0 67.8 86.9

Recurring net profit (MYRm) 38.6 39.7 58.0 67.8 86.9

Recurring net profit growth (%) (4.4) 2.7 46.2 17.0 28.0

Recurring EPS (MYR) 0.12 0.12 0.16 0.18 0.23

DPS (MYR) 0.06 0.06 0.07 0.07 0.08

Recurring P/E (x) 19.7 19.7 15.0 13.1 10.2

P/B (x) 3.39 3.07 2.69 2.44 2.10

P/CF (x) 18.4 13.1 12.4 9.1 8.5

Dividend Yield (%) 2.5 2.5 2.8 2.9 3.1

EV/EBITDA (x) 13.1 11.3 8.4 7.2 5.6

Return on average equity (%) 18.2 16.6 20.1 19.7 22.0

Net debt to equity (%) net cash net cash net cash net cash net cash

Our vs consensus EPS (adjusted) (%) 0.0 0.0

Source: Company data, OSK-DMG

We recently visited Riverstone's new facility in Taiping, Malaysia. Production will start with two lines in October, before two more are added each in November and December to reach a 1bn capacity. While its competitors have been aggressively expanding capacity and its costs have risen in 3Q, we remain positive on Riverstone's expansion plan and execution capabilities. Maintain BUY with a SGD1.15 TP (22% upside to the current share price), based on a 16.3x FY14 P/E.

Phase 1 to add 1bn capacity by end-FY14. Riverstone’s new facility,

Phase 1, will add another c.1bn (25%) in capacity, bringing its total capacity to 4.2bn from 3.2bn annually. It consists of six lines – three single and three double lines – with two single lines to commence production in October, and one single and one double each in November and December. From FY15 onwards, the product mix of this new facility will likely be 80% for healthcare and 20% for clean room.

Orders for three lines in hand. Riverstone has already secured orders for half of its production lines for Phase 1, with three new customers from Germany, the US and Japan – having signed fixed contracts for two years to take up one line each. However, both parties can exit the contract after six months if either side is not contented, provided that six months’ notice is given. This means for its three lines, its production capacity has been fully taken up for at least a year.

Potential headwinds ahead in 3Q14. With the big four Malaysian glove makers aggressively expanding capacity, we expect intense competition to pressure ASPs. In addition, additional costs for the new plant would be incurred in Q3, with no production as yet since it has to hire and train new workers first. Still, we expect its 4Q performance to make up for any potential shortfall in 3Q earnings.

Maintain BUY with a SGD1.15 TP. Jarick Seet takes over coverage of Riverstone with this research note. We are excited and remain positive over its expansion plans ahead. Phase 2 of its expansion, which may cost up to MYR50m, could add another 1bn to its total capacity. Phase 2 is already 30%-completed so far, and full production is slated to commence by end-FY15. Maintain BUY, with a SGD1.15 TP.

http://www.efa.biz/

Riverstone Holdings (RSTON SP)

27 September 2014

See important disclosures at the end of this report 2

Phase 1 – Taiping Plant Visit

Figure 1: Exterior of Phase 1 Plant Figure 2: Phase 2 under construction

Source: OSK-DMG Source: OSK-DMG

Figure 3: Start of production line Figure 4: Empty white mould for gloves


Figure 5: Acid Tank 1 Figure 6: Alkaline Tank 1



27 September 2014


Figure 7: Brushing of powder-like particles Figure 8: Coagulant tank


Figure 9: Latex tank Figure 10: Products after the latex tank, before oven drying


Figure 11: Double-line production Figure 12: Sorting of end-product



27 September 2014


Figure 13: Quality check Figure 14: Blow machine to allow easier removal of gloves


Figure 15: Warehouse for stock waiting to be shipped out Figure 16: Bio-mass


Figure 17: Bio-Mass Machine Figure 18: Packing of gloves



27 September 2014


Financial Exhibits

Profit & Loss (MYRm) Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F

Total turnover 273 310 358 401 481

Cost of sales (211) (238) (260) (288) (338)

Gross profit 62 72 98 113 143

Gen & admin expenses (13) (14) (17) (19) (23)

Selling expenses (6) (8) (9) (11) (13)

Other operating costs (2) (3) (1) (1) (1)

Operating profit 41 47 70 83 106

Operating EBITDA 55 64 89 107 135

Depreciation of fixed assets (14) (16) (19) (25) (29)

Operating EBIT 41 47 70 83 106

Interest income 2 1 2 2 3

Interest expense (0) - - (0) (0)

Pre-tax profit 43 48 73 85 109

Taxation (4) (9) (15) (17) (22)

Minority interests - 0 - - -

Profit after tax & minorities 39 40 58 68 87

Reported net profit 39 40 58 68 87

Recurring net profit 39 40 58 68 87


Cash flow (MYRm) Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F

Operating profit 41 47 70 83 106

Depreciation & amortisation 14 16 19 25 29

Change in working capital (13) 10 (14) 5 (11)

Other operating cash flow 2 (12) 4

Operating cash flow 44 62 79 112 123

Interest received 0 0 1 2 3

Interest paid (0) - - (0) (0)

Tax paid (3) (3) (10) (17) (22)

Cash flow from operations 41 60 70 97 104

Capex (29) (28) (29) (70) (60)

Other investing cash flow 0 0 0 0 0

Cash flow from investing activities (29) (28) (29) (70) (60)

Dividends paid (19) (19) (22) (26) (28)

Shares repurchased - (0) (1) - -

Proceeds from issue of shares 3 10 31 - -

Increase in debt (0) - - 10 10

Other financing cash flow (0) (0) - - -

Cash flow from financing activities (16) (9) 8 (16) (18)

Cash at beginning of period 44 42 64 114 125

Total cash generated (3) 22 48 12 26

Forex effects 1 0 2 - -

Implied cash at end of period 42 64 114 126 152



27 September 2014


Financial Exhibits

Balance Sheet (MYRm) Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F

Total cash and equivalents 42 64 114 125 152

Inventories 32 30 36 37 43

Accounts receivable 53 58 63 75 90

Other current assets 4 3 2 3 3

Total current assets 130 156 215 240 287

Tangible fixed assets 138 161 153 199 230

Total other assets - - 12 12 12

Total non-current assets 138 161 166 211 243

Total assets 268 317 381 451 530

Accounts payable 35 48 39 58 68

Other current liabilities 1 2 6 6 6

Total current liabilities 36 50 45 63 74

Total long-term debt - - - 10 20

Other liabilities 7 12 13 13 13

Total non-current liabilities 7 12 13 23 33

Total liabilities 44 62 58 86 107

Share capital 113 124 156 156 156

Retained earnings reserve 111 131 167 209 268

Other reserves - (0) (1) (1) (1)

Shareholders' equity 224 255 323 365 424

Minority interests 0 0 0 0 0

Other equity (0) (0) 0 0 0

Total equity 224 255 323 365 424

Total liabilities & equity 268 317 381 451 530


Key Ratios (MYR) Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F

Revenue growth (%) 23.1 13.6 15.5 12.1 19.8

Operating profit growth (%) (4.5) 15.5 48.7 17.2 28.4

Net profit growth (%) (4.4) 2.7 46.2 17.0 28.0

EPS growth (%) (6.0) (0.1) 31.6 14.3 28.0

Bv per share growth (%) 9.9 10.6 14.0 10.4 16.2

Operating margin (%) 15.0 15.3 19.7 20.6 22.1

Net profit margin (%) 14.2 12.8 16.2 16.9 18.1

Return on average assets (%) 15.2 13.6 16.6 16.3 17.7

Return on average equity (%) 18.2 16.6 20.1 19.7 22.0

Net debt to equity (%) (18.6) (25.1) (35.3) (31.7) (31.1)

DPS 0.06 0.06 0.07 0.07 0.08

Recurrent cash flow per share 0.13 0.18 0.19 0.26 0.28



27 September 2014


SWOT Analysis

Niche business provides a wide moat

Sound management ensures solid financial health

Enlarging capacity provides growth opportunities and economies of scale

Rising cost of production

Increasing pricing pressure

Exposure to forex volatility

Demand for cleanroom gloves should stay healthy given the company’s niche in the premium market

Demand for healthcare gloves is expected to grow exponentially, driven by European customers diversifying their supplier bases

Expansion of its healthcare gloves capacity may give rise to pricing pressure

-10%

-1%

8%

17%

26%

35%

0

5

10

15

20

25

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

P/E (x) vs EPS growth

P/E (x) (lhs) EPS growth (rhs)

0%

3%

6%

9%

13%

16%

19%

22%

25%

0

1

1

2

2

3

3

4

4

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

P/BV (x) vs ROAE

P/B (x) (lhs) Return on average equity (rhs)

Source: Company data, OSK-DMG Source: Company data, OSK-DMG

Company Profile Riverstone Holdings specialises in producing and selling nitrile gloves used for clean-room manufacturing and the healthcare industry.


27 September 2014


Recommendation Chart

0.29

0.39

0.49

0.59

0.69

0.79

0.89

0.99

1.09

Oct-09 Jan-11 Apr-12 Jul-13

Price Close

na

1.0

5

1.0

7

1.1

5 Recommendations & Target Price

Buy Neutral Sell Trading Buy Take Profit Not Rated

Source: OSK-DMG, Bloomberg

Date Recommendation Target Price Price

2014-05-07 Buy 1.15 0.86

2014-02-27 Buy 1.07 0.79

2013-11-04 Buy 1.05 0.75

Source : OSK-DMG, Bloomberg

9

RHB Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months

Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels

Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage

Disclosure & Disclaimer

All research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any representation or warranty, express or implied, as to its accuracy, completeness or correctness. No part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. This report is general in nature and has been prepared for

information purposes only. It is intended for circulation to the clients of RHB and its related companies. Any recommendation contained in this report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This report is for the information of addressees only and is not to be taken in substitution for the exercise of judgment by addressees, who should obtain separate legal or

financial advice to independently evaluate the particular investments and strategies. This report may further consist of, whether in whole or in part, summaries, research, compilations, extracts or analysis tha t has been prepared by RHB’s

strategic, joint venture and/or business partners. No representation or warranty (express or implied) is given as to the accuracy or completeness of such information and accordingly investors should make their own informed decisions before relying on the same.

RHB, its affiliates and related companies, their respective directors, associates, connected parties and/or employees may own or have positions in securities of the company(ies) covered in this research report or any securities related thereto, and may from time to time add to, or dispose off, or may be materially interested in any such securities. Further, RHB, its affiliates and related companies do and seek to do business with the company(ies) covered

in this research report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies), may sell them or buy them from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory or underwriting services for or relating to such company(ies), as well as solicit such investment, advisory or other services from any entity mentioned in this

research report. RHB and its employees and/or agents do not accept any liability, be it directly, indirectly or consequential losses, loss of profits or damages that may arise

from any reliance based on this report or further communication given in relation to this report, including where such losses, loss of profits or damages are alleged to have arisen due to the contents of such report or communication being perceived as defamatory in nature.

The term “RHB” shall denote where applicable, the relevant entity distributing the report in the particular jurisdiction ment ioned specifically herein below and shall refer to RHB Research Institute Sdn Bhd, its holding company, affiliates, subsidiaries and related companies.

All Rights Reserved. This report is for the use of intended recipients only and may not be reproduced, distributed or published for any purpose without prior consent of RHB and RHB accepts no liability whatsoever for the actions of third parties in this respect.

Malaysia This report is published and distributed in Malaysia by RHB Research Institute Sdn Bhd (233327-M), Level 11, Tower One, RHB Centre, Jalan Tun Razak,

50400 Kuala Lumpur, a wholly-owned subsidiary of RHB Investment Bank Berhad (RHBIB), which in turn is a wholly-owned subsidiary of RHB Capital Berhad.

Singapore This report is published and distributed in Singapore by DMG & Partners Research Pte Ltd (Reg. No. 200808705N), a wholly-owned subsidiary of DMG &

Partners Securities Pte Ltd, a joint venture between Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group) and OSK Investment Bank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity is referred to as “RHBIB”, which in turn is a wholly-owned subsidiary of RHB Capital Berhad). DMG & Partners Securities Pte Ltd is a Member of the Singapore Exchange Securities Trading Limited. DMG &

Partners Securities Pte Ltd may have received compensation from the company covered in this report for its corporate finance or its dealing activities; this report is therefore classified as a non-independent report.

As of 26 September 2014, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd do not have proprietary positions in the securities covered in this report, except for: a) -

As of 26 September 2014, none of the analysts who covered the securities in this report has an interest in such securities, except for: a) -

Special Distribution by RHB

Where the research report is produced by an RHB entity (excluding DMG & Partners Research Pte Ltd) and distributed in Singapore, it is only distributed to "Institutional Investors", "Expert Investors" or "Accredited Investors" as defined in the Securities and Futures Act, CAP. 289 of Singapore. If you are not an "Institutional Investor", "Expert Investor" or "Accredited Investor", this research report is not intended for you and you should disregard this research

report in its entirety. In respect of any matters arising from, or in connection with this research report, you are to contac t our Singapore Office, DMG & Partners Securities Pte Ltd

Hong Kong

This report is published and distributed in Hong Kong by RHB OSK Securities Hong Kong Limited (“RHBSHK”) (formerly known as OSK Securities Hong Kong Limited), a subsidiary of OSK Investment Bank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity is referred to as “RHBIB”), which in turn is a wholly-owned subsidiary of RHB Capital Berhad.

RHBSHK, RHBIB and/or other affiliates may beneficially own a total of 1% or more of any class of common equity securities of the subject company. RHBSHK, RHBIB and/or other affiliates may, within the past 12 months, have received compensation and/or within the next 3 months seek to obtain

compensation for investment banking services from the subject company. Risk Disclosure Statements

DMG & Partners Research Guide to Investment Ratings

Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months

Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage

DISCLAIMERS

This research is issued by DMG & Partners Research Pte Ltd and it is for general distribution only. It does not have any regard to the specific investment objectives, financial situation and particular needs of any specific recipient of this research report. You should independently evaluate particular

investments and consult an independent financial adviser before making any investments or entering into any transaction in relation to any securities or investment instruments mentioned in this report.

The information contained herein has been obtained from sources we believed to be reliable but we do not make any representat ion or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions and views expressed in this report are subject to change without notice.

This report does not constitute or form part of any offer or solicitation of any offer to buy or sell any securities.

DMG & Partners Research Pte Ltd is a wholly-owned subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between OSK Investment Bank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity is referred to as “RHBIB” which in turn is a wholly-owned subsidiary of RHB Capital Berhad) and Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group). DMG & Partners Securities

Pte Ltd is a Member of the Singapore Exchange Securities Trading Limited. DMG & Partners Securities Pte Ltd and their associates, directors, and/or employees may have positions in, and may effect transactions in the securities

covered in the report, and may also perform or seek to perform broking and other corporate finance related services for the corporations whose securities are covered in the report. This report is therefore classified as a non-independent report.

As of 26 September 2014, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd, do not have proprietary positions in the subject companies, except for: a) -

As of 26 September 2014, none of the analysts who covered the stock in this report has an interest in the subject companies covered in this report, except for:

a) - DMG & Partners Research Pte. Ltd. (Reg. No. 200808705N)

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Documents

Riverstone Holdings (RSTON SP) (Maintained) - RHBInvest · See important disclosures at the end of this report Powered by EFATM Platform 1 Company Update, 29 September 2014 Riverstone