Excerpts from analyst's report 


Maybank Kim Eng analyst
: John Cheong

bluehands9.14@ Riverstone's new glove factory in Taiping, Malaysia.
NextInsight file photo.

Favourable trends

» USD has appreciated 12.7% YoY / 0.7% QoQ against MYR in 2Q15. MERS-induced demand could provide upside to healthcare-glove ASPs.

» EPS impact of 10.3% gas-price hike in 3Q15 limited to <2%.

» Maintain BUY & EPS. Raise TP to SGD2.05 from SGD1.78 after rollover to FY16, still based on 18x P/E. Catalysts expected from faster-than-scheduled expansion.


Winner of USD strength & potentially, MERS
Riverstone is expected to benefit from USD strength against MYR as 70-80% of its revenue vs 40-50% of its cost of sales is denominated in USD. This translates into net earnings exposure of 3-6% to every 10% movement in USD, in our estimation. While gains for its healthcare gloves may be muted by major capacity expansion in the industry, we believe cleanroom gloves stand to gain. These are expected to account for 68% of its FY15 gross profit.

We are conservatively keeping our average 3.50 USD/MYR rate forecast for now against Maybank FX Research’s 3.68 due to Riverstone’s hedging activities. Potential upside for FY15-17 EPS is 1-2% if the exchange rate does touch 3.68. We understand that demand for healthcare gloves has yet to surge due to MERS as there is, as yet, no widespread outbreak. If it does happen, we think Riverstone could book higher ASPs rather than sales volume, as its entire capacity has been filled. We estimate that every 10% increase in healthcare-glove ASPs could lift our FY15-17 EPS by 3.0%.

Less than 2% dent from gas-price hike; maintain BUY
We also estimate that Malaysia’s 10.3% gas-price hike in 3Q15 will affect its EPS only by 1.6-1.7%. This is because gas accounts for a mere c.5% of its cost of sales. Moreover, the company expects to partially pass this on. Maintain BUY and EPS. We raise TP to SGD2.05 from SGD1.78 after rolling over to FY16. This is still based on 18x P/E, slightly below our average 19x target for its peers on account of its smaller size.

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