Riverstone

Riverstone(S$2.44): More capacity growth to come

DBS Vickers reiterated its Buy call on Riverstone and lifted its TP, as it sees more room for capacity growth.

The house touts that the glove maker may be able to grow capacity faster than expected amid its recent acquisition of a 9.4 acre land for the construction of a factory and worker hostels.

This comes on top of the group’s initial plan to double annual capacity from 4.2b gloves in 2014 to a minimum of 8.2b gloves by 2018, which could more than double its earnings to RM172m in FY17 from the RM71m in FY14.

Strong performance reported in most of 2015 is also expected to be sustained in the 4Q, as the group continued to enjoyed low raw material prices, robust demand, a strong USD against MYR, and a 13% boost in annual capacity to 5.2b gloves amid the commissioning of three additional production lines in 3Q.

Consequently, top and bottom line for the quarter ending Dec are expected to jump by 56% and 62% respectively, and this could elevate 2015’s net profit by 77% to RM 126m.

Valuation wise, the house raised its target valuation multiple to 20x of FY16/17 P/E from 18x previously, as it noted larger peers have re-rated to 31x 2015 forward P/E.

As a result, the broker maintained its Buy call on the counter, and bumped up its TP to $2.83 from $2.49.