Riverstone

Riverstone: Maybank-KE maintains Buy with TP $1.21. The house expects Riverstone to benefit from a strengthening USD/MYR as 70-80% of its revenue, of which around 50% hedged, and 40-50% of its cost of sales (73% of revenue) is denominated in USD. This translates into positive net exposure of around 3-6%, where its profit before tax can gain or lose 0.3-0.6% for every 1% movement in USD, ceteris paribus. While the USD/MYR has strengthened by 4.1% y/y in 4Q14E, there is negligible earnings impact as these benefits are usually passed on to its customers. About 90% of Riverstone’s gloves are nitrile gloves. Its main raw material, nitrile butadiene, is a substitute for latex and by-product of crude oil/natural gas. Butadiene prices are expected to remain low, along with latex and crude oil prices. Maybank-KE estimates an earnings sensitivity of 0.4% for every 1% change in its raw-material prices. However, the positive impact will be neutralised by downward ASP adjustments as benefits are passed on to customers. The house also sees limited downside for butadiene prices due to tight supplies. Valuations are undemanding, as Riverstone’s 12x FY15E P/E trails peers’ 15x average, although it has the strongest EPS growth prospects.