Riverstone

Riverstone: 4Q14 results were above estimates, with net profit at RM22.4m (+39.7%), taking FY14 net profit to RM71.0m (+22.4%), largely fuelled by lower taxes.

Revenue for the quarter was up 20.8% to RM112.0m, driven by higher demand for its cleanroom and healthcare gloves. Additionally, new capacity of 1b gloves pa. (up from 3.2b capacity) from Phase 1 expansion commenced full productions in Nov ‘14 and has begun contributions to 4Q14 earnings.

Gross margin fell 2.3ppt to 26.4%, while bottom-line was largely aided by a more than 99% decline in tax expenses to RM0.05m, arising from higher tax incentives from capital investments made.

Going forward, Riverstone guides that its phase II expansion plan in Taiping, Perak, Malaysia has progressed well, and by 31 Dec ‘15, the group is expected to have a total annual production capacity of 5.2 b gloves.

Additionally, Maybank-KE expects Riverstone to benefit from the USD rally, with the USD/MYR cross having appreciated 5% y/y on average in 4Q14. To recap, Riverstone is a key beneficiary of USD strength as 70-80% of its revenue (50% hedged) are denominated in USD. In addition, prices of its key input, nitrile butadiene rubber should remain low given weak crude oil and latex price.

Proposed DPS of RM4.55c, taking FY14 payout to RM6.9¢ (FY13: RM6.8¢).

At the current price, Riverstone trades at 17.3x core FY14 P/E. The group’s share price has rallied towards Maybank-KE’s street high TP of $1.21. For now, Maybank-KE places its TP and Buy recommendation under review, pending the group’s results briefing.