SINGAPORE (May 5): Lim & Tan Securities is upgrading its call on Riverstone Holdings from “hold” to “buy” while upping its 2017 and 2018 net profit forecasts for RM140 million ($45.3 million) and RM 150 million respectively, from RM120 million and RM130 million previously.
This represents a forward and prospective price-earnings ratio of 13-14x, which Lim & Tan deems undemanding relative to the company’s growth rate of 20%.
In a report issued on Friday, the brokerage’s Singapore research team says Riverstone’s 1Q17 net profit of RM33.6 million accounted for 27.5% of their old 2017 forecast of RM120 million, when it usually accounts for only 20%, and therefore comes as a surprise.
(See also: Riverstone posts 24% rise in 1Q earnings to $10.8 mil on higher demand, production capacity)
The earnings beat was due to better than expected growth in the higher margined clean room glove segment on the back of new customer and production additions in the mobile phone, tablet and LCD manufacturing sectors.
This implies market share gains from new customers as well as new product penetration as the company has traditionally been strong in the hard disk drive (HDD) segment, says the team.
Healthy demand from the healthcare business segment, as volumes grew 20% on-year, also contributed to the growth.
“We understand that the relatively new US market helped accelerate the take-up rate for their new capacity,” comments the team on the company’s entire new production capacity of 1 billion glove pieces being taken up during the quarter, which it believes will “come in handy to meet the strong immediate demand” in 2H17.
Lim & Tan believes there is scope for Riverstone to increase its dividends to 7 Malaysian cents, giving a yield of close to 3%.
Should the stock trade to its five-year mean PE of 16x, the research team says its target price for Riverstone would be $1.06.
Shares of Riverstone closed 9.04% higher at 96 cents on Friday.
