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Long-term outlook positive for Riverstone despite 3Q hiccups

Samantha Chiew
Samantha Chiew11/9/2017 10:40 AM GMT+08  • 3 min read
Long-term outlook positive for Riverstone despite 3Q hiccups
SINGAPORE (Nov 9): Riverstone Holdings on Tuesday announced that its 3Q17 earnings were up 15.1% to RM34.3 million ($11.1 million) from RM29.8 million a year ago on higher revenue.
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SINGAPORE (Nov 9): Riverstone Holdings on Tuesday announced that its 3Q17 earnings were up 15.1% to RM34.3 million ($11.1 million) from RM29.8 million a year ago on higher revenue.

Overall, the group’s 9M17 earnings were at RM95.1 million, up 12.8% from RM84.3 million last year.

Revenue for the third quarter ended September increased 12.5% y-o-y to RM187.8 million from RM167 million in 3Q16, due to an increase in demand for healthcare and cleanroom gloves.

See: Riverstone 3Q earnings up 15.1% at $11.1 mil on higher revenue

DBS is maintaining its “hold” call on Riverstone Holdings with a target price of $1.09.

Commenting on the increase in earnings in a Wednesday report, analyst Carmen Tay says, “The moderation in Butadiene prices (which weighed substantially on 2Q performance) and an improved product mix (in favour of higher-margin cleanroom gloves) were key factors.”

However, revenue declined about 12% q-o-q due to several factors, including average selling price (ASP) declines pegged to lower raw material costs, but was mainly due to a decrease in production output following a power supply outage at the group’s Taiping plant, which has since been resolved.

This further impacted the top line as shipments for several lower-margin glove types were delayed after falling short of standing instructions for a minimum shipment quantity, and will likely be recognised in 4Q17 instead.

“Coupled with the progressive commissioning of new dipping lines from September onwards, we remain optimistic of a stronger 4Q17,” says Tay.

In addition, the analyst believes that the group’s steady margin improvement compared to 1Q17 may be a reflection of its progress in growing new cleanroom glove accounts.

Meanwhile, the fourth phase of Riverstone’s multi-year expansion plan in Taiping is currently underway and Tay reckons that this should help increase the group’s annual production capacity to at least 7.6 billion gloves by end-2017.

Beyond FY17, the group also has plans to grow production capacity further to 10.4 billion gloves by end-2019, underpinning longer-term growth.

Maybank is also maintaining its “hold” call on Riverstone with a target price of $1.05 as the group’s positive outlook has already been priced in.

To recap, there was a sharp spike in the synthetic rubber gloves price in 1Q17, but decreased rapidly in 2Q17.

Although there was a 14% q-o-q increase in prices for 3Q17, it eased in October back to 2Q17 levels, the while the management expects the price to remain low in 4Q17 as supply has returned to normal after the restart of a plant from periodic maintenance.

Furthermore, the management expects the demand for cleanroom gloves to remain robust driven by increased demand for use in the production of flat-panel displays and from semiconductor contract manufacturers in Vietnam and China, while healthcare gloves are expected to continue to benefit from robust demand.

In a Thursday report analyst John Cheong says, “A temporary disruption in Riverstone’s own power station caused an output loss of 70 million gloves in 3Q17, which caused one shipment to fall short.”

The management has said that it intends to fill the backlog in October.

“In addition, since most new capacity for the 1.4b gloves pa expansion only started in Sept 2017, we expect 4Q17 earnings to improve q-o-q and y-o-y,” adds Cheong.

As at 11.05am, shares in Riverstone are trading 1 cent lower at $1.06 or 3.9 time FY17 book with a dividend yield of 2.1%.

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