Riverstone

Riverstone: AmFraser visited Riverstone's new production plant in Taiping, Perak last Friday. THe new facility will have a total of 6 glove production lines, with capacity to produce 1b gloves annually. Total capex for the factory is RM80m and is financed with the company's internal cash flows. The house estimates the new facility could add ~Rm80-86m in terms of revenue pa (FY13 rev: RM358m). Meanwhile, construction of a second factory just next door is underway, with expected completion date in 4Q15. This will also increase capacity by another 1b gloves pa, but will only require capex of RM50m because it can share equipment like compressors, cooling and heating equipment with the first plant. Mgt also shared that Riverstone is now trying out a new contracting model with three of its customers, where customers will be able to book exlusive use of pdtn lines. Contracts will run for two years, with a termination notice period of 6 mths. With customers locked in for a longer term basis, pdtn downtime will be reduced. Mgt anticipates 60% of pdtn lines to be put under this model eventually. AMFraser expects Riverstone's growth to outpace its larger Msian peers. Riverstone tradeds at 10.9x consensus FY15e P/E, vs the Msian peer avg of 14.4x. The house does not have a rating on the stock.