Riverstone Holdings - Beat on strong margins


■ 3Q15 core earnings beat on higher margins, forming 29% of our FY15F. Gross margin was 3ppt higher than anticipated due to favourable currency and material prices.

■ Expect good results to continue from contributions of new capacity and currency benefits. Raise FY15-17 EPS by 6-8%.

Maintain BUY, TP raised to SGD2.36 from SGD2.12 after raising our EPS and our P/E target to 20x, up from 19x. Catalysts from possible actions to boost stock liquidity.

Earnings beat on favourable currency & input costs
3Q15 core earnings grew 85% YoY, on better than expected gross margin due to favourable currency and material prices. Similarly, operating cash flows were impressive, growing 158% YoY. New capacity of 1b glove pa contributed more than last year, due to earlier commencement of production. In FY15, additional 1b gloves pa commenced full production in Oct, while in FY14, the additional capacity only commenced full production in Dec. Based on our estimation, the new capacity of 1b gloves pa in phase 2 expansion will contribute for four months in FY15, compared to two months in FY14, under phase 1 expansion.

Strong earnings to persist; Maintain BUY
We expect strong earnings to continue moving forward from strong USD/MYR, low material prices and contributions from new capacity. Furthermore, in 4Q15, we expect Riverstone to realise tax benefits of c.MYR3m, for capex spent on phase 2 expansion. We raise our FY15-17 EPS by 6-8% after raising our gross margin.

Technical Analysis
Daily Chart
Maintain BUY. TP raised to SGD2.36 from SGD2.12 after raising EPS and our P/E target to 20x, up from 19x to account for strong earnings momentum and to remove Riverstone’s size discount. Riverstone is trading at a 15% discount vs its peers’ average, despite having the best ROE and growth profile. Catalysts from possible actions to boost stock liquidity. (Read Report)

Read Related Reports
1) Riverstone Holdings - Strong 3Q results, but lofty valuation by CIMB Research, published on 6 November 2015

2) Riverstone Holdings - On Track For a Record Year by RHB Research, published on 6 November 2015

Source : Maybank Kim Eng Research

Labels: ,