Download Glove Manufacturers

Regional Industry Focus
Glove Manufacturers
Refer to important disclosures at the end of this report
DBS Group Research . Equity
2017: Easing pressure
•
Supply-demand mismatch narrows as major
players push back capacity expansion plans
•
ASP and margin pressures ease as demand
catches up to supply
•
USD appreciation provides limited upside
potential as operation costs increase
•
Valuation at fair level in the absence of catalysts
to re-rate the sector
Delay in expansion allows demand – which remains firm,
to catch up to supply. The Malaysian Rubber Gloves
Manufacturers Association (MARGMA) expects the demand for
healthcare gloves to grow by 8-10% in 2017. This is backed by
the better standards encapsulated in healthcare reforms and
hygiene practices in emerging markets.
Meanwhile, with larger glove players are now vowing to bring
in capacity at a more gradual pace to better track demand
growth to avoid oversupply conditions and price competition.
We forecast glove output for glove players at 11%/12% for
FY17/18F. In contrast, their volume growth in 2016 is
estimated to have been c.14%, significantly above demand
growth of c.10%.
Pressures on average selling prices (ASPs) to ease.. As the
supply-demand mismatch narrows, glove players’ bargaining
power should improve. This was seen in recent months as
glove players were able to raise ASPs to offset higher raw
material costs.
Margins to stabilise.. With demand catching up to supply and
pressure on ASPs expected to ease, we see margins stabilising
ahead as continuous efforts in increasing efficiency and
automation can contribute to steady operating margins due to
improving economies of scale. Margins would also get a boost
from the recent USD appreciation but is unlikely to be
sustained once such savings are pass on the customers with 12 months lag unless USD continues to strengthen further.
Furthermore, rising raw material and other operating costs will
also negate such savings.
Lack of catalysts.. Share prices of glove makers have rallied on
the back of a stronger USD since early Nov16 but with the
sector’s CY17 PE valuation at 21.5x which is slightly above
+1SD of its 5-year mean, such positive has largely been priced
in. We have HOLD calls for all glove companies under our
coverage but prefer Top Glove and Riverstone from a valuation
perspective.
ed-CK / sa- BC, PY
9 Jan 2017
KLCI : 1,675.49
Analyst
Siti Ruzanna MOHD FARUK +603 2604 3965
[email protected]
Paul YONG CFA +65 6682 3712 [email protected]
Singapore Research Team
STOCKS
Price
LC
RM
Hartalega Holdings
Berhad
Top
Glove
Corporation
Kossan
Rubber
Industries Corp
Supermax
S$
Riverstone Holdings
Mkt Cap Target Price Performance (%)
3 mth
12 mth
US$m
LC
Rating
4.88
5.33
6.49
2.15
1,791
1,493
928
323
4.60
4.80
6.30
2.45
5.0
10.1
(5.9)
(1.8)
(19.3)
(23.0)
(29.8)
(37.7)
HOLD
HOLD
HOLD
HOLD
0.87
447
0.97
(4.4)
(30.5)
HOLD
Source: AllianceDBS, Bloomberg Finance L.P.
Closing price as of 6 Jan 2017
Hartalega Holdings Berhad : Hartalega is a niche player in nitrile gloves
(94% of sales volume). It has the largest nitrile glove capacity among
the glove makers under our coverage.
Top Glove Corporation : Top Glove is the world’s largest rubber glove
manufacturer with an annual production capacity of 48.0bn gloves.
Natural rubber gloves make up the lion’s share of its product mix
(51%), while nitrile rubber gloves account for 35%. Vinyl and surgical
gloves account for the rest.
Kossan Rubber Industries : Kossan manufactures latex, nitrile,
cleanroom and surgical gloves. It also produces technical rubber
products for the automotive, industrial and construction industry.
Supermax Corp : Supermax is one of the five largest rubber glove
makers in the world. The group positions itself as an own-brand
manufacturer (OBM), compared to most of its competitors who
operate as an original-equipment manufacturer (OEM) in the
competitive glove industry.
Riverstone Holdings : Riverstone Holdings is a natural rubber and
nitrile (synthetic rubber) glove manufacturer specialising in cleanroom
and healthcare gloves. It is also engaged in the manufacture and
distribution of other ancillary products such as finger cots, packaging
bags and face masks.
Estimated capacity of the glove makers under our coverage
bn gloves
60
50
40
30
20
10
2009 2010
Hartalega
2011 2012
Top Glove
2013 2014 2015 2016F 2017F 2018F
Kossan
Supermax
Riverstone
Source: AllianceDBS, DBS Bank, Companies
Industry Focus
Glove Manufacturers
Meanwhile, 3QCY16 results for Hartalega and Top Glove were
in line with our expectations.
Battle of the glove makers
The 3QCY16 results for glove makers came in lower compared
to last year, as the tailwinds of 2015 turned into headwinds for
2016. Among the five stocks under our coverage, three missed
expectations and two were in line.
3QCY16 below expectations – Kossan, Supermax and
Riverstone. Kossan’s 3QCY16 earnings (-38% y-o-y; -17% q-oRiverstone
q) missed expectations as there was a drop in production output
due to revamp works as well as higher operating costs.
Supermax’s 3QCY16 earnings (-49% y-o-y; +188% q-o-q) also
came in below expectations on the back of higher operating
costs and additional costs for its contact lens business.
Similarly, Riverstone’s 3QCY16 earnings (-15.6% y-o-y; +9.2%
q-o-q) were slightly below as labour challenges hampered the
company’s ability to ramp-up on production as planned.
Q-o-q sales volume growth by company
Manufacturers dedicating more resources to nitrile segment
ahead. The continuous global demand growth for gloves
prompted glove players to ramp up their capacity, especially for
nitrile gloves – as they sought to capitalise on better margins
and expected long-term demand in the nitrile segment.
Y-o-y output growth was healthy with an average of 6% for the
above players. In 3QCY16, Hartalega registered the highest
growth in glove output (+28% y-o-y; +7% q-o-q), followed by
Riverstone (+22% y-o-y; +3% q-o-q), Top Glove (+7% y-o-y;
+3% q-o-q) and Supermax (-1.3% y-o-y; +4% q-o-q), while
Kossan came in last (-4% y-o-y; 3% q-o-q).
In terms of unit profitability (EBIT/k gloves), most glove makers
recorded lower numbers in 3QCY16, except for Hartalega and
Top Glove which managed to increase their unit profitability by
9% and 20% q-o-q respectively.
Capacity utilisation rate by company
15%
100%
90%
10%
80%
70%
5%
60%
0%
Hartalega
Top Glove*
Kossan
Supermax
Riverstone
50%
40%
-5%
30%
-10%
20%
-15%
10%
0%
Hartalega
-20%
2Q15
3Q15
4Q15
1Q16
2Q16
*Top Glove’s number is one month lag due to its different month end
(Aug FYE)
Source: AllianceDBS, DBS Bank
90%
40.00
80%
35.00
70%
30.00
60%
25.00
50%
20.00
40%
15.00
30%
10.00
20%
5.00
10%
-
0%
Top Glove*
Kossan
3Q15
4Q15
1Q16
Page 2
1Q16
Supermax
2Q16
Riverstone
3Q16
Supermax
2Q16
3Q16
Riverstone
2%
3%
3%
4%
3%
4%
5%
23%
25%
23%
21%
20%
19%
19%
15%
14%
15%
16%
17%
17%
20%
50%
47%
47%
46%
46%
45%
40%
10%
11%
12%
13%
14%
15%
16%
2009
2010
2011
2012
2013
2014
2015
Hartalega
Source: AllianceDBS, DBS Bank
Kossan
4Q15
Source: AllianceDBS, DBS Bank
100%
RM/k gloves
45.00
2Q15
3Q15
Relative gloves capacity by companies
EBIT per thousand gloves by company
Hartalega
Top Glove*
2Q15
3Q16
Top Glove
Source: AllianceDBS, DBS Bank
Kossan
Supermax
Riverstone
Industry Focus
Glove Manufacturers
Outlook for 2017
output growth for 2016, which is significantly above demand
growth of c.10%.
Heading into CY2017, we expect to see improvements for glove
players as the narrowing of supply-demand mismatch supports
the easing of ASP and margin pressures.
Delay in expansion plans by major players allows demand –
which remains firm, to catch up to supply...
supply... When competition
began to heat up in 2016, larger glove players (i.e. Top Glove
and Hartalega) pushed back capacity expansion plans and
vowed to bring in capacity at a more gradual pace to better
track demand growth and ultimately, avoid oversupply
conditions and price competition.
Meanwhile, backed by better standards in healthcare reforms
and hygiene practices in emerging markets, MARGMA expects
demand for healthcare gloves to grow by 8-10% in 2017.
Global demand vs production capacity
227
210
210
170
140
150
148
160
171
180
194
130
90
50
Installed capacity of the five glove makers under our coverage
stood at 110 bn gloves p.a as at end-2015. Ongoing expansion
among these glove players will bring total capacity to 149.5bn
gloves by end-2018, which implies a 3-year CAGR of 10.8% for
FY15-18F. As these new capacities are gradually commissioned,
we forecast a narrower combined glove output growth of
11%/12% for FY17F/18F – compared to an estimated 14%
245
bn gloves
250
10
(30)
1.1
15
9
31
6
2009
3.1
2.4
18
1.8
18
18
14
11
10
39
36
33
11
9
8
2010 2011 2012
Hartalega
Supermax
7.2
26
24
8.2
30
3.1
18
16
4.2
18
16
5.2
21
21
6.2
23
22
44
46
55
43
50
42
22
25
29
13
14
18
28
2013 2014 2015 2016F 2017F 2018F
Top Glove
Riverstone
Kossan
World demand
Source: AllianceDBS, DBS Bank, Companies, MARGMA
Pipeline of expansion projects
Companies
Top Glove
Expansion Projects
Annual
capacity
(bn pieces)
Expected
Commercial
Production
Factory #6
1.4
Dec 2016
Factory #30
4.8
April 2017
Factory #31 (Phase 1)
1.5
August 2017
Factory #31 (Phase 2)
4.5
May 2018
Glove City
24.6
First plant by
3Q17
Supermax
Plant #16, Meru
3.0
3Q 2017
Phase 1, Bestari Jaya
4.5
1Q 2018
Hartalega
Next Generation Complex
28.2
2020
Riverstone
Phase 4
1.0
Dec 2017
Dec 2018
Kossan
Phase 5
Remarks
The entire project will comprise four plants with an annual capacity
of 7.9bn pieces each; to be completed by end of 2020.
The production lines at Plant #3 and #4 will be commissioned
between Nov 2016 and Nov 2018, and Plant #5 and #6 between
2019 and 2020
1.0
Source: Company, AllianceDBS, DBS Bank
Page 3
Industry Focus
Glove Manufacturers
While ASPs have fallen sharply in 2016…
2016… While the intense
competition among glove players was chiefly responsible for
the sharp decline in ASPs over the course of 2016, these
factors also played a role:
Percentage change of average selling price by company
% change
30%
20%
10%
(i)
Time lag in passing on higher costs, and
Glove makers practise cost pass-throughs in the form of
periodic adjustments to ASPs - a mechanism which often helps
to mitigate increases in certain operating costs, such as higher
raw material prices, labour costs and natural gas tariffs.
However, pass-throughs may entail a lag of 1-2 months as
orders are typically placed three months ahead.
(ii) Gains from currency tailwinds to be passed down
Given additional capacity from glove players, pricing are more
competitive and pricing adjustments includes passing on gains
from the stronger USD. This will limit the degree to which
higher operating costs may be passed on. As such, we see
limited upside potential from USD appreciation as it is mostly
captured in the pricing formula and may be negated by the
rising operating costs.
0%
-10%
-20%
-30%
2Q15
Hartalega
3Q15
4Q15
1Q16
2Q16
Top Glove
Kossan
Supermax
3Q16
Riverstone
Source: AllianceDBS
With adjustments to the pricing already made in 2016, coupled
with revised capacity expansion plans that better track demand
growth, ASP pressures should further ease. We also see margins
stabilising ahead as ongoing efforts to improve efficiency and
increase automation can contribute to steady operating margins
as economies of scale at the operating level may help offset
pressures at the GP level.
EBIT per thousand gloves by company
RM/k gloves
45.00
While limited, cleanroom glove manufacturers could still
benefit from a USD rally as prices for these higher-end, niche
varieties are typically negotiated on a semi-annual basis (as
compared to monthly repricing for healthcare gloves).
40.00
35.00
30.00
25.00
20.00
15.00
USD/MYR movement
10.00
USD/MYR
5.00
4.60
4.40
2Q15
Hartalega
4.20
Source: AllianceDBS
4.00
3.80
3.60
3.40
Source: Bloomberg
.. the narrowing of supplysupply-demand mismatch should help ease
ASP and margin pressure in 2017.
2017 Pricing pressure appears to
have diminished slightly as ASPs, which were on a downtrend for
three consecutive quarters in spite of rising costs, started to inch
up in 2QCY16 (on average).
Page 4
3Q15
Top Glove*
4Q15
Kossan
1Q16
2Q16
Supermax
3Q16
Riverstone
Industry Focus
Glove Manufacturers
Natural gas subsidy rationalization program
Potential impact of recent developments
RM/MMBtu
As they are largely temporary in nature, manufacturers may
face difficulty in incorporating volatile raw material price
movements into their cost-plus mechanism during the monthly
price renegotiation and adjustment process, which could weigh
on margins and profitability in the short-term. Meanwhile,
assuming that there is no sudden influx of new glove
production capacity (which would then limit the bargaining
power of manufacturers), sustained price changes backed by
clear trends should largely be passed on to customers over
time.
35.00
20%
17%
30.00
15%
25.00
10%
10%
20.00
10%
7%
6%
15.00
3%
2%
5%
2%
0%
10.00
0%
-3%
5.00
RM/MMBtu (RHS)
Jan-19
May-19
Sep-18
Jan-18
May-18
Sep-17
Jan-17
May-17
Sep-16
Jan-16
May-16
Sep-15
Jan-15
May-15
-5%
Sep-14
May-14
Volatility in latex and nitrile prices could weigh on shortshort-term
profits. The uptick in latex prices was largely driven by firmer
demand for rubber as tax breaks introduced by the Chinese
central government in 2016 (which effectively halved the 10%
purchase tax on vehicles with 1.6-litre or smaller engines)
spurred double-digit y-o-y vehicle sales growth in China.
Further incentives by the government could send natural
rubber prices higher. Separately, historical trends suggest that
the upcoming wintering season (Mar-May) will likely keep latex
prices elevated on the back of reduced supply – likewise for
nitrile prices, which tends to track latex prices closely.
% change (LHS)
Source: Gas Malaysia, AllianceDBS
New policy on foreign worker levy could impact earnings by 112%. There are no surprises for Malaysia’s minimum wage policy
for now, as nothing was announced in Budget 2017. The
minimum monthly wage may continue to stay at RM1,000 until
the next revision in 2018. As for the new policy on foreign
worker levy enforced by the Employer Mandatory Commitment
(EMC), employers would be disallowed from deducting the levy
from the wages of their workers. This could be negative for the
glove players as the foreign worker levy is borne by the
employees initially. A levy of RM1,850 would increase cost and
impact earnings up to 1-2%.
Latex and nitrile prices
18.0
The higher costs would impact earnings on a short term basis as
glove players take time to pass on higher costs. However, the
details of the announcement have not been ironed out and
hence we can assume that it is not implementable until details
are fully confirmed in writing.
RM/k
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
Nitrile
Jul-16
Oct-16
Jan-16
Apr-16
Jul-15
Oct-15
Jan-15
Apr-15
Jul-14
Oct-14
Jan-14
Apr-14
Jul-13
Oct-13
Jan-13
Apr-13
Jul-12
Oct-12
Jan-12
Apr-12
-
Latex
Source: Bloomberg, AllianceDBS
Not overly concerned by natural gas tariff revisions. We are not
overly concerned about the recent price hike for natural gas as
the government proceeds with its subsidy rationalisation
programme. This price revision will be done semi-annually.
Natural gas cost only makes up about 10-11% of total costs,
compared to latex cost which makes up 40-50% of total
production costs.
Furthermore, as the manufacturers continue to gain scale, they
could further explore alternative sources such as biomass, as
savings for biomass are only enjoyed when there is sufficient
mass.
New ruling by Bank Negara Malaysia will not impact earnings. In
view of the weak ringgit, Bank Negara Malaysia has enforced a
ruling whereby 75% of export proceeds have to be converted
into ringgit to improve the liquidity of onshore foreign exchange
market and stem the ringgit weakness. This will lead to the auto
conversion of export proceeds denominated in foreign currencies
within the day.
However, glove manufacturers are allowed to re-convert the
proceeds back to foreign currencies at the same exchange rate to
defray costs denominated in foreign currencies. Hence, apart
from additional administrative requirements, we do not foresee
any impact on earnings from this new ruling.
No major impact from FDA ban on powdered gloves either.
either. As
the glove players under our coverage do not export powdered
gloves to the US, we do not expect the ban (which is effective
18 Jan 2017) to have any major impact on their operations.
While powdered gloves represent a large proportion of their
output – 32% and 28% for Top Glove and Supermax,
respectively, they are exported to developing markets instead of
US.
Page 5
Industry Focus
Glove Manufacturers
Valuation and Recommendation
Glove sector trading at +1SD of 5-year mean P/E.
P/E. The tailwinds
of a strong USD against the ringgit and cheaper raw material
prices turned into headwinds in 1HCY16. We may see some
recovery in the coming quarters as the USD strengthens against
the ringgit. However, we are still cautious about the rising
operational costs (gas tariff and raw material price hikes).
We expect the sector’s earnings to recover slowly in CY17,
before growing by 12% per annum in CY18 – mainly driven by
Kossan and Hartalega. The sector is presently trading at 21.5x
CY17 earnings, which is slightly above +1SD of its 5-year mean
PE.
Glove sector: 12-m rolling P/E
30.00
+2sd:24.4x
25.00
+1sd:20.8x
20.00
Due to the level of customisation and stringent processes
involved in the development and production of cleanroom
gloves, they are typically less price-sensitive and enjoy higher
margins compared to healthcare varieties, which has enabled
Riverstone to better defend margins relative to larger peers
over the last few quarters in spite of pricing pressures.
3) Hartalega (HOLD
(HOLD,
HOLD, TP: RM4.60)
RM4.60)
We have a HOLD rating for Hartalega with a TP of RM4.60,
pegged to 27x CY17F EPS. This is the mid-point between its
average and +1SD of its 5-year mean PE. Recent data shows
that Hartalega is able to sell the additional output from Next
Generation Integrated Glove Manufacturing Complex (NGC)
(2Q sales volume rose 29% y-o-y), leading to lower earnings risk
for the stock.
Avg:17.1x
15.00
-1sd:13.5x
10.00
-2sd:9.8x
5.00
Dec-11
As competition in the healthcare glove space remains keen,
Riverstone’s advantage lies in its dual income channels from
both healthcare and cleanroom gloves, and clear leadership
position in the high-end (Class 10 and Class 100) nitrile
cleanroom glove segment.
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Our optimism towards Hartalega is driven by: (1) its superior
operating structure with a breakeven point that is below its
competitors’, and (2) expansion of capacity in NGC. But we
expect its share price to consolidate at the current level as the
NGC’s earnings growth prospects have largely been priced in.
Sources: AllianceDBS
4) Kossan (HOLD,
(HOLD, TP: RM6.30)
RM6.30)
HOLD calls on all five manufacturers but prefer Top Glove and
Riverstone from a valuations perspective. Share prices of glove
makers have rallied on the back of a stronger USD since early
Nov16 but this has largely been priced in. As such, we have
HOLD calls for all glove companies under our coverage but prefer
Top Glove and Riverstone from a valuation perspective.
We have a HOLD rating for Kossan with a RM6.30 TP, pegged
to 18x CY17F EPS. This is equivalent to +0.5SD of its 5-year
mean PE valuation which reflects the medium-term growth
prospects of Kossan arising from its capacity ramp-up. We like
the stock for its clear expansion plan, but its share price has
largely priced in the near-term earnings prospects.
1) We prefer Top Glove (HOLD, TP: RM4.80
RM4.80)
80)…
5) Supermax (HOLD, TP: RM2.45)
RM2.45)
Our HOLD rating for Top Glove is intact, with a RM4.80 TP.
Our TP is based on 17x CY17F EPS which is +0.5SD of its 5year mean EPS. We believe near term earnings will be boosted
by the strong USD. However, we remain cautious as the
positive impact from the strong USD may be negated by rising
operating costs, as natural gas tariffs and raw material prices
could increase further.
2) …and also like Riverstone (HOLD, TP: S$0.97)
While we have a HOLD call on Riverstone with a S$0.97 TP
(based on 16x CY17F EPS), we think the counter could be
attractive at current prices (stock currently trading <15x CY17F
PE) if the recent alleviation of ASP pressures – which plagued
the industry for most of 2016, is further improved and
sustained.
Page 6
We have a HOLD rating for Supermax with a RM2.45 TP,
pegged to 13x CY17F EPS. Like the other glove makers, the
company is plagued by margin compression, with its EBIT/k
gloves falling 48% y-o-y in 3QFY14. Meanwhile, Supermax has
seen repeated delays in the commercial production of Plants
#10 and #11 at Meru, Klang.
Industry Focus
Glove Manufacturers
Peer Comparison
CY2017/2018
P/E
Recommend Target Price Current Price
ation
(LC)
(LC)
Market Cap
(USD m)
EPS Growth (YoY)
Dividend Yield
Price/ BVPS
ROAE
CY2017
CY2018
CY2017
CY2018
CY2017
CY2018
CY2017
CY2018
CY2017
CY2018
Hartalega
HOLD
4.60
4.88
1,791
28.5x
25.3x
11%
13%
1.7%
1.9%
4.6x
4.2x
17%
17%
Kossan
HOLD
6.30
6.49
1,493
18.5x
16.2x
22%
15%
2.7%
3.1%
3.5x
3.2x
20%
21%
Supermax
HOLD
2.45
2.15
928
11.4x
10.3x
(3%)
10%
2.5%
2.7%
1.3x
1.2x
12%
12%
Top Glove
HOLD
4.80
5.33
323
18.8x
17.3x
0%
9%
2.7%
2.9%
3.3x
3.0x
18%
18%
HOLD
0.97
0.87
447
15.2x
14.1x
12%
8%
2.5%
2.7%
3.1x
2.8x
22%
21%
21.5x
19.2x
9%
11%
2.3%
2.5%
3.7x
3.3x
18%
18%
Riverstone
Weighted avg
Sources: AllianceDBS, DBS Bank
Closing price as of 6 Jan 2017
Glove stocks: 12-m rolling PE trends
45.00
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
Jan-12
Hartalega
Jan-13
Kossan
Jan-14
Supermax
Jan-15
Top Glove
Jan-16
Jan-17
Riverstone
Sources: AllianceDBS, DBS Bank
Page 7
Malaysia Company Guide
Hartalega Holdings
Refer to important disclosures at the end of this report
Version 6 | Bloomberg: HART MK | Reuters: HTHB.KL
DBS Group Research . Equity
9 Jan 2017
HOLD
Ratcheting up its volume
Last Traded Price ( 6 Jan 2017)
KLCI : 1,675.49)
2017): RM4.88 (KLCI
Price Target 1212-mth:
mth: RM4.60 (-6% downside) (Prev RM4.60)
Where we differ:
differ: Our forecast is below consensus
Analyst
Siti Ruzanna MOHD FARUK +603 2604 3965
[email protected]
Price Relative
RM
Relative Index
6.5
267
6.0
247
5.5
227
5.0
207
4.5
187
4.0
167
3.5
147
3.0
127
2.5
107
2.0
Jan-13
Jan-14
Jan-15
Hartalega Holdings (LHS)
Forecasts and Valuation
FY Mar (RM m)
Revenue
EBITDA
Pre-tax Profit
Net Profit
Net Pft (Pre Ex.)
Net Pft Gth (Pre-ex) (%)
EPS (sen)
EPS Pre Ex. (sen)
EPS Gth Pre Ex (%)
Diluted EPS (sen)
Net DPS (sen)
BV Per Share (sen)
PE (X)
PE Pre Ex. (X)
P/Cash Flow (X)
EV/EBITDA (X)
Net Div Yield (%)
P/Book Value (X)
Net Debt/Equity (X)
ROAE (%)
87
Jan-17
Jan-16
Relative KLCI (RHS)
2016A
2016A
1,498
382
317
257
252
26.5
15.7
15.4
20
15.7
8.00
91.5
31.1
31.7
33.4
21.4
1.6
5.3
0.1
18.6
Earnings Rev (%):
Consensus EPS (sen
sen):
sen :
Other Broker Recs:
2017F
2017F
1,750
393
310
252
252
(0.2)
15.4
15.4
0
15.4
7.29
99.0
31.8
31.8
28.3
21.1
1.5
4.9
0.2
16.1
2018F
2018F
2,034
447
357
290
290
15.0
17.7
17.7
15
17.7
8.39
109
27.6
27.6
24.5
18.6
1.7
4.5
0.2
17.0
2019F
2019F
2,304
500
400
325
325
12.1
19.8
19.8
12
19.8
9.41
120
24.6
24.6
21.3
16.6
1.9
4.1
0.1
17.3
0
17.2
B: 1
0
19.3
S: 5
0
21.8
H: 14
Source of all data on this page: Company, AllianceDBS, Bloomberg
Finance L.P
ASIAN INSIGHTS
ed: CK / sa:BC, PY
Maintain HOLD, RM4.60 TP. We maintain HOLD on Hartalega
with a TP of RM4.60, based on 27x CY17F EPS. We expect
Hartalega to grow sales volume at 17% CAGR over FY16-19F,
in line with capacity growth. However, earnings CAGR will be
more muted at 8% as we expect unit profitability to drop by
18%/2%/1% in FY17/18/19F, driven by competition.
Premier nitrile glove maker. Hartalega’s Next Generation
Complex (NGC) is expected to cement the group’s position as
the premier nitrile glove maker in the world, reinforcing its
competitive advantages with better efficiency and sufficient
capacity growth. Set on a 112-acre site in Sepang, Hartalega’s
Next Generation Complex (NGC) comprises six nitrile glove
plants with a total of 72 production lines capable of producing
28.2bn gloves p.a. Each production line is able to churn out 45k
gloves/hour, translating into a record high productivity of 2.6
employees/m gloves/month (vs 3.9 currently, and industry
average of 4.7).
Hartalega’s NGC to drive growth ahead. The NGC Plants #1
and #2 are fully commissioned in March 2016 with 24
production lines. The average output per line is 45,000 pcs/hr.
This pumps up its total capacity to 20bn pieces p.a. Meanwhile,
the group has started construction of NGC Plant #3 which is
targeted for completion in Oct 2017. The construction of NGC
Plant #4 has been extended and expected to complete by end2018.
Valuation:
Expect share price to consolidate at current level.
level The earnings
growth prospect from NGC has largely been priced in. Our TP
is based on 27x CY17 EPS.
Key Risks to Our View:
Increased competition could erode margins. Hartalega could
face increased competition as other glove makers crowd into
the nitrile glove segment. This could reduce Hartalega’s
lucrative margins.
At A Glance
Issued Capital (m shrs)
1,641
Mkt. Cap (RMm/US$m)
8,010 / 1,791
Major Shareholders (%)
Hartalega Industries
49.3
Employees Provident Fund
7.5
Budi Tenggara
3.0
Free Float (%)
30.9
3m Avg. Daily Val (US$m)
1.1
ICB Industry : Health Care / Health Care Equipment & Services
VICKERS SECURITIES
Company Guide
Hartalega Holdings
Capacity (m gloves)
29600
29896.0
CRITICAL DATA POINTS TO WATCH
26100
25625.1
22400
21354.3
Earnings Drivers:
NGC expansion plan to drive capacity growth. Set on a 112acre site in Sepang, Hartalega’s Next Generation Complex
(NGC) comprises six nitrile glove plants with a total of 72
production lines capable of producing 28.3bn gloves p.a. Each
production line is able to churn out 45k gloves/hour, translating
into a record high productivity of 2.6 employees/m
gloves/month (vs 3.9 currently, and industry average of 4.7). To
date, Hartalega has completed two NGC plants. It has also
started construction for Plant #3. All in, we expect Hartalega to
grow effective annual capacity by 16%/17%/13% in
FY17/18/19F.
17083.4
19387
14191
12812.6
8541.7
4270.9
0.0
2015A
2016A
2017F
2018F
2019F
85
85
85
2017F
2018F
2019F
Utilisation rate (%)
90.0
88.2
81
72.0
54.0
36.0
Sales volume to grow at 19% CAGR. We expect the group’s
utilisation to increase to 85% in FY17-19F. We assume that
Hartalega may close its older and less efficient plants once the
new NGC plants come online. Premised on this, we expect
Hartalega to grow its sales volume by 21%/17%/13% in
FY17/18/19F.
18.0
0.0
2015A
2016A
Output (m gloves)
25160
25663.20
EBIT/k gloves is a better metric to assess profitability. We assess
Hartalega’s profitability by looking at unit profitability (i.e. EBIT/k
gloves), rather than profit margins. This is because profit
margins can fluctuate even if there is no change in underlying
profitability, because of its cost pass-through pricing (which has
a 1-2 months’ lag). Under this pricing mechanism, profit
margins can rise when costs are falling (i.e. same level of profits
on lower ASP), and margins can drop when costs are rising (i.e.
same level of profits on higher ASP).
Lower EBIT/k gloves for FY17F. We project Hartalega’s EBIT/k
gloves to decline by 18% in FY17F due to higher operating
costs, i.e. raw material and natural gas price hikes. Profitability is
also under pressure because it would be difficult for Hartalega
to sustain its premium pricing as more glove makers expand
into nitrile gloves. As such, we forecast EBIT/k gloves will fall by
2%/1% in FY18/19F.
22185
20530.56
19040
15703
15397.92
12516
10265.28
5132.64
0.00
2015A
2016A
2017F
2018F
2019F
16.3
15.9
15.8
2017F
2018F
2019F
EBIT/k gloves (RM)
21.4
21.2
19.8
17.1
12.9
8.6
4.3
0.0
Primarily a nitrile gloves producer. Driven by the Hartalega
NGC, we expect Hartalega’s sales mix to continue to tilt
towards nitrile gloves, from 95% in FY16 to 96% in FY18F.
Demand for nitrile gloves is expected to outpace latex gloves in
the coming years, but supply and demand dynamics will be
weak relative to latex gloves, because of rising incoming supply.
As such, we expect Hartalega’s premium pricing to erode over
time, leading to margin compression.
2015A
2016A
Source: Company, AllianceDBS
ASIAN INSIGHTS
VICKERS SECURITIES
Page 9
Company Guide
Hartalega Holdings
Balance Sheet:
Gearing up for expansion. Hartalega’s NGC plants are expected
to be rolled out over six years, but a significant part of the
RM2.2bn capex will be front-loaded because of the need to
build common infrastructure, and the rapid speed in
constructing Plants #1-4 (in FY14-17). As such, we expect
Hartalega to gear up to fund the expansion. We forecast
Hartalega will turn from net cash position in FY15 to net
gearing position of 0.1x in FY17F.
Leverage & Asset Turnover (x)
0.45
0.9
0.40
0.35
0.9
0.30
0.25
0.8
0.20
0.15
0.8
0.10
0.05
0.00
0.7
2015A
2016A
2017F
Gross Debt to Equity (LHS)
Share Price Drivers:
Supported by capacity and demand growth. We expect
Hartalega’s sales volume to grow at double digits, given the
capacity growth and demand for nitrile gloves. Although our
expectations seem aggressive in percentage terms, the absolute
increase in output is reasonable vis-à-vis the additional demand
in global consumption. Unit profitability is influenced by the
competitive environment, productivity, and macroeconomic
factors (i.e. currency movements, raw material prices, etc.); the
competitive environment is expected to drag unit profitability
over the longer term.
Key Risks:
Increased competition could erode margins. Hartalega could
face increased competition as other glove makers crowd into
the nitrile glove segment. This could reduce Hartalega’s
lucrative margins.
2018F
2019F
Asset Turnover (RHS)
Capital Expenditure
RMm
450.0
400.0
350.0
300.0
250.0
200.0
150.0
100.0
50.0
0.0
2015A
2016A
2017F
2018F
2019F
Capital Expenditure (-)
ROE (%)
18.0%
16.0%
14.0%
12.0%
10.0%
8.0%
Potential challenge to sell additional the output. In view of
Hartalega’s aggressive expansion plan, the group could face
difficulty in securing buyers for its additional output. This could
pressure utilisation rates going forward.
6.0%
4.0%
2.0%
0.0%
2015A
2016A
2017F
2018F
2019F
Forward PE Band (x)
Company Background
Hartalega is a niche player in nitrile gloves (92% of sales
volume). It has the largest nitrile glove capacity among the
glove makers under our coverage.
(x)
42.7
37.7
+2sd: 35.8x
32.7
+1sd: 30.9x
27.7
Avg: 25.9x
22.7
-1sd: 21x
17.7
-2sd: 16.1x
12.7
Jan-13
Jan-14
Jan-15
Jan-16
PB Band (x)
(x)
6.1
+2sd: 5.49x
5.1
+1sd: 4.43x
4.1
Avg: 3.37x
3.1
-1sd: 2.32x
2.1
1.1
Jan-13
-2sd: 1.26x
Jan-14
Jan-15
Jan-16
Source: Company, AllianceDBS
ASIAN INSIGHTS
Page 10
VICKERS SECURITIES
Company Guide
Hartalega Holdings
Key Assumptions
FY Mar
Capacity (m gloves)
Utilisation rate (%)
Output (m gloves)
EBIT/k gloves (RM)
Income Statement (RMm)
FY Mar
Revenue
Cost of Goods Sold
Gross Profit
Other Opng (Exp)/Inc
Operating Profit
Other Non Opg (Exp)/Inc
Associates & JV Inc
Net Interest (Exp)/Inc
Exceptional Gain/(Loss)
PrePre-tax Profit
Tax
Minority Interest
Preference Dividend
Net Profit
Net Profit before Except.
EBITDA
Growth
Revenue Gth (%)
EBITDA Gth (%)
Opg Profit Gth (%)
Net Profit Gth (Pre-ex) (%)
Margins & Ratio
Gross Margins (%)
Opg Profit Margin (%)
Net Profit Margin (%)
ROAE (%)
ROA (%)
ROCE (%)
Div Payout Ratio (%)
Net Interest Cover (x)
2015A
2015A
2016A
2016A
2017F
2017F
2018F
2018F
2019F
2019F
14,191
88.2
12,516
21.2
19,387
81.0
15,703
19.8
22,400
85.0
19,040
16.3
26,100
85.0
22,185
15.9
29,600
85.0
25,160
15.8
2015A
2015A
2016A
2016A
2017F
2017F
2018F
2018F
2019F
2019F
1,146
(805)
341
(75.8)
266
0.0
0.0
1.14
10.2
277
(66.7)
(0.5)
0.0
210
200
311
1,498
(1,097)
402
(90.6)
311
0.0
0.0
0.88
4.94
317
(59.1)
(0.3)
0.0
257
252
382
1,750
(1,331)
419
(109)
310
0.0
0.0
0.19
0.0
310
(57.9)
(0.3)
0.0
252
252
393
2,034
(1,554)
480
(126)
354
0.0
0.0
2.99
0.0
357
(66.6)
(0.3)
0.0
290
290
447
2,304
(1,765)
539
(142)
397
0.0
0.0
3.37
0.0
400
(74.6)
(0.3)
0.0
325
325
500
3.5
(12.1)
(14.1)
(14.7)
30.7
22.6
17.1
26.5
16.8
2.9
(0.3)
(0.2)
16.2
13.8
14.1
15.0
13.3
12.0
12.1
12.1
29.8
23.2
18.3
19.0
16.3
17.1
49.7
NM
26.8
20.8
17.2
18.6
15.1
16.1
51.0
NM
23.9
17.7
14.4
16.1
11.5
12.5
47.5
NM
23.6
17.4
14.3
17.0
11.4
12.5
47.5
NM
23.4
17.2
14.1
17.3
11.8
12.9
47.5
NM
Source: Company, AllianceDBS
ASIAN INSIGHTS
VICKERS SECURITIES
Page 11
Company Guide
Hartalega Holdings
Quarterly / Interim Income Statement (RMm)
2Q2016
3Q2016
FY Mar
2Q2016
3Q2016
Revenue
Cost of Goods Sold
Gross Profit
Other Oper. (Exp)/Inc
Operating Profit
Other Non Opg (Exp)/Inc
Associates & JV Inc
Net Interest (Exp)/Inc
Exceptional Gain/(Loss)
PrePre-tax Profit
Tax
Minority Interest
Net Profit
Net profit bef Except.
EBITDA
4Q2016
4Q2016
1Q2017
1Q2017
2Q2017
2Q2017
379
(286)
93.8
(24.5)
69.3
0.0
0.0
0.20
5.58
75.1
(14.5)
(0.1)
60.4
54.8
85.9
398
(308)
90.3
4.90
95.2
0.0
0.0
0.0
(4.0)
91.2
(18.3)
(0.1)
72.8
76.8
113
400
(348)
52.4
15.4
67.8
0.0
0.0
0.15
3.01
71.0
(9.4)
(0.1)
61.5
58.5
88.9
402
(327)
74.9
(3.9)
71.0
0.0
0.0
0.19
(3.0)
68.1
(11.7)
(0.2)
56.2
59.2
88.1
437
(349)
87.8
(4.4)
83.4
0.0
0.0
0.07
0.27
83.8
(12.6)
0.04
71.2
70.9
100
18.4
(9.4)
(13.0)
(12.6)
4.9
31.5
37.4
40.0
0.6
(21.3)
(28.8)
(23.8)
0.3
(0.9)
4.7
1.3
8.7
13.9
17.5
19.8
24.7
18.3
15.9
22.7
23.9
18.3
13.1
16.9
15.4
18.6
17.7
14.0
20.1
19.1
16.3
Balance Sheet (RMm)
FY Mar
2015A
2015A
2016A
2016A
2017F
2017F
2018F
2018F
2019F
2019F
Net Fixed Assets
Invts in Associates & JVs
Other LT Assets
Cash & ST Invts
Inventory
Debtors
Other Current Assets
Total Assets
1,044
0.0
24.8
70.5
120
198
0.20
1,457
1,402
0.0
20.5
84.4
202
239
14.1
1,961
1,571
0.0
18.2
289
245
279
14.1
2,416
1,700
0.0
15.8
317
286
324
14.1
2,657
1,819
0.0
13.5
326
324
368
14.1
2,864
ST Debt
Creditor
Other Current Liab
LT Debt
Other LT Liabilities
Shareholder’s Equity
Minority Interests
Total Cap. & Liab.
6.08
108
12.6
0.33
59.5
1,269
1.66
1,457
42.4
147
0.82
206
60.8
1,502
2.08
1,961
42.4
179
0.82
506
60.8
1,625
2.42
2,416
42.4
209
0.82
556
60.8
1,786
2.75
2,657
42.4
237
0.82
556
60.8
1,965
3.08
2,864
197
64.1
55.3
48.8
52.5
0.9
3.1
2.1
CASH
CASH
6,592.2
26.6
306
(164)
53.2
45.5
57.2
0.9
2.8
1.7
0.1
0.1
171.7
12.6
358
(259)
54.0
47.7
65.2
0.8
3.7
2.6
0.2
0.2
45.6
8.1
414
(281)
54.2
48.4
66.2
0.8
3.7
2.5
0.2
0.2
36.8
7.7
468
(272)
54.8
49.0
67.0
0.8
3.7
2.5
0.1
0.1
36.8
7.6
Growth
Revenue Gth (%)
EBITDA Gth (%)
Opg Profit Gth (%)
Net Profit Gth (Pre-ex) (%)
Margins
Gross Margins (%)
Opg Profit Margins (%)
Net Profit Margins (%)
Non-Cash Wkg. Capital
Net Cash/(Debt)
Debtors Turn (avg days)
Creditors Turn (avg days)
Inventory Turn (avg days)
Asset Turnover (x)
Current Ratio (x)
Quick Ratio (x)
Net Debt/Equity (X)
Net Debt/Equity ex MI (X)
Capex to Debt (%)
Z-Score (X)
Source: Company, AllianceDBS
ASIAN INSIGHTS
Page 12
VICKERS SECURITIES
Company Guide
Hartalega Holdings
Cash Flow Statement (RMm)
FY Mar
2015A
2015A
2016A
2016A
2017F
2017F
2018F
2018F
2019F
2019F
277
45.9
(69.7)
0.0
(47.3)
(3.5)
202
(422)
4.31
0.0
0.0
4.63
(413)
(105)
1.59
220
(0.1)
117
(0.8)
(95.4)
16.1
(14.2)
317
70.6
(64.7)
0.0
(79.8)
(3.5)
240
(426)
2.59
0.0
0.0
(0.1)
(423)
(123)
243
78.8
(1.3)
197
0.56
13.8
19.5
(11.4)
310
82.6
(57.9)
0.0
(51.7)
0.0
283
(250)
0.0
0.0
0.0
0.0
(250)
(129)
300
0.0
0.0
171
0.0
205
20.4
2.03
357
93.2
(66.6)
0.0
(56.3)
0.0
327
(220)
0.0
0.0
0.0
0.0
(220)
(129)
50.0
0.0
0.0
(79.2)
0.0
27.8
23.4
6.52
400
104
(74.6)
0.0
(53.5)
0.0
376
(220)
0.0
0.0
0.0
0.0
(220)
(146)
0.0
0.0
0.0
(146)
0.0
9.14
26.1
9.48
Pre-Tax Profit
Dep. & Amort.
Tax Paid
Assoc. & JV Inc/(loss)
Chg in Wkg.Cap.
Other Operating CF
Net Operating CF
Capital Exp.(net)
Other Invts.(net)
Invts in Assoc. & JV
Div from Assoc & JV
Other Investing CF
Net Investing CF
Div Paid
Chg in Gross Debt
Capital Issues
Other Financing CF
Net Financing CF
Currency Adjustments
Chg in Cash
Opg CFPS (sen)
Free CFPS (sen)
Source: Company, AllianceDBS
Target Price & Ratings History
6.16
RM
5.66
5.16
2
6
1
4.66
5
7
12- mt h
T arget Rat ing
Pric e
S.No.
Dat e of
Report
Closing
Pric e
1:
11 Feb 16
5.04
5.00
2:
17 Feb 16
5.05
5.00
HOLD
3:
04 May 16
4.10
4.10
HOLD
4:
03 Aug 16
4.08
4.20
HOLD
5:
09 Nov 16
4.74
4.60
HOLD
6:
20 Dec 16
4.75
4.60
HOLD
7:
29 Dec 16
4.76
4.60
HOLD
HOLD
4
4.16
3
3.66
Jan-16
May-16
Sep-16
Not e : Share price and Target price are adjusted for corporate actions.
Source: AllianceDBS
Analyst: Siti Ruzanna MOHD FARUK
ASIAN INSIGHTS
VICKERS SECURITIES
Page 13
Malaysia Company Guide
Top Glove Corporation
Refer to important disclosures at the end of this report
| Bloomberg: TOPG MK | Reuters: TPGC.KL
Version
DBS Group Research . Equity
9 Jan 2017
HOLD
A happy new year
Last Traded Price ( 6 Jan 2017)
KLCI : 1,675.49)
2017): RM5.33 (KLCI
Price Target 1212-mth:
mth: RM4.80 (-10% downside) (Prev RM4.80)
Where we differ:
differ: Our forecast is below consensus
Analyst
Siti Ruzanna MOHD FARUK +603 2604 3965
[email protected]
Price Relative
RM
Relative Index
265
6.9
5.9
215
4.9
Maintain HOLD. We maintain our HOLD call for Top Glove with
a higher TP RM4.80. We believe near term earnings will be
boosted by the strong USD. However, we are remain cautious as
the positive impact from the strong USD may be negated by
rising operating costs, as natural gas tariffs and raw material
prices could increase further.
Expansion still ongoing.
ongoing Top Glove is gearing up to increase its
nitrile glove segment by increasing its capacity in this segment.
The expansion plans are underway such as Factory 30 in Klang
(April 2017) and Factory 31 in Klang (Phase 1 in August 2017,
Phase 2 in May 2018), and will raise total production capacity to
56.8bn gloves p.a. (+18% from current capacity of 48.0bn p.a.).
165
3.9
115
2.9
1.9
Jan-13
Jan-14
Jan-15
Top Glove Corporation (LHS)
Forecasts and Valuation
FY Aug (RM m)
Revenue
EBITDA
Pre-tax Profit
Net Profit
Net Pft (Pre Ex.)
Net Pft Gth (Pre-ex) (%)
EPS (sen)
EPS Pre Ex. (sen)
EPS Gth Pre Ex (%)
Diluted EPS (sen)
Net DPS (sen)
BV Per Share (sen)
PE (X)
PE Pre Ex. (X)
P/Cash Flow (X)
EV/EBITDA (X)
Net Div Yield (%)
P/Book Value (X)
Net Debt/Equity (X)
ROAE (%)
2016A
2016A
2,889
525
442
361
361
28.9
28.7
28.7
28
28.7
14.5
145
18.5
18.5
15.4
12.2
2.7
3.7
CASH
21.1
Earnings Rev (%):
Consensus EPS (sen
sen):
sen :
Other Broker Recs:
Jan-16
65
Jan-17
Relative KLCI (RHS)
2017F
2017F
3,306
510
423
345
345
(4.3)
27.5
27.5
(4)
27.5
13.9
157
19.4
19.4
15.6
12.5
2.6
3.4
CASH
18.2
2018F
2018F
3,574
556
462
377
377
9.1
30.0
30.0
9
30.0
15.1
173
17.8
17.8
13.8
11.2
2.8
3.1
CASH
18.2
2019F
2019F
3,760
590
501
409
409
8.6
32.6
32.6
9
32.6
16.4
190
16.4
16.4
12.4
10.3
3.1
2.8
CASH
17.9
0
28.8
B: 8
0
30.7
S: 4
0
31.5
H: 11
Source of all data on this page: Company, AllianceDBS, Bloomberg
Finance L.P
ASIAN INSIGHTS
ed: CK/ sa:BC, PY
Profitability to normalise in FY17/18F.
FY17/18F We forecast EBIT/k gloves
to decrease in FY17F, as we factor in higher operating costs as
well as USD gains. We believe the exceptional 1H16 showing
will not be replicated given the unfavourable conditions. Our
EBIT/k glove assumptions are conservative vis-à-vis the recordbreaking level in FY16, as we expect EBIT/k gloves to normalise
in FY18-19F.
Valuation:
Maintain HOLD.
HOLD We maintain our HOLD recommendation with
a TP of RM4.80. Our TP is based on 17x CY17F EPS (previously
16x CY17EPS) which is +0.5SD of its 5-year mean EPS. Our PE
multiple reflects it’s near term earnings growth.
Key Risks to Our View:
Rising competition could erode margins. Competition is
heating up in the glove sector with several glove makers
expanding aggressively. This could results in higher pressure on
margins.
At A Glance
Issued Capital (m shrs)
1,253
Mkt. Cap (RMm/US$m)
6,678 / 1,493
Major Shareholders (%)
Wee Chai Lim
29.4
Kumpulan Wang Persaraan (KWAP)
9.0
Firstway United
5.1
Free Float (%)
51.4
3m Avg. Daily Val (US$m)
4.5
ICB Industry : Health Care / Health Care Equipment & Servic
VICKERS SECURITIES
Company Guide
Top Glove Corporation
Capacity (bn gloves)
CRITICAL DATA POINTS TO WATCH
57.4
Earnings Drivers:
Top Glove currently operates 25 glove factories with the
capacity to produce 48.0bn gloves p.a. including the latest
expansion in Factory 6 Phuket. It is planning a factory (F30) in
Klang, Malaysia. They have also acquired a factory in Klang
(F31) which is estimated to produce 4.4bn gloves p.a. Together,
these expansion projects comprising more than 80 production
lines will raise the group’s annual capacity to 56.8bn gloves.
Premised on the expected completion dates provided by the
management, we expect Top Glove to grow its effective annual
capacity by 9%/11%/5% in FY17/18/19F.
49.2
54
56.8
48.7
43.9
44.6
2015A
2016A
41.0
32.8
24.6
16.4
8.2
0.0
2017F
2018F
2019F
Utilisation rate (%)
83.9
82.3
82
80
80
2016A
2017F
2018F
2019F
75.2
67.1
Sales volume to grow at 8% CAGR.
CAGR We expect the group’s
utilisation rate to be flat in FY17F and decline marginally by
2.0/2.0ppts in FY18/19F. The expected downtrend in FY18F
would come from the incoming capacity of 5.3bn gloves p.a.
Premised on this, we expect Top Glove to grow its sales volume
by 9%/8%/5% in FY17/18/19F. This translates into a 3-year
CAGR of 7%, which is in line with expected consumption
growth of 6-8% p.a.
EBIT/k gloves is a better metric to assess profitability. We assess
Top Glove’s profitability by looking at unit profitability (i.e.
EBIT/k gloves), rather than profit margins. This is because profit
margins can fluctuate even if there is no change in underlying
profitability, because of its cost pass-through pricing (which lags
by 1-2 months). Under the pricing mechanism, profit margins
can rise when costs are falling (i.e. same level of profits on
lower ASP), and margins can drop when costs are rising (i.e.
same level of profits on higher ASP), with no impact on the
bottomline.
EBIT/k gloves to normalise. EBIT/k gloves increased by 9% in
FY16 backed by the strengthening of the USD coupled with the
cheaper raw material prices. However, we expect EBIT/k gloves
to decline by 14% to RM9.76 in FY17F as a result of increasing
competition among glove players especially in the nitrile
segment, and rising operating costs from natural gas hike and
raw material prices. Thereafter, we conservatively assume Top
Glove’s EBIT/k gloves to normalise and remain flat in FY18/19F.
50.3
33.6
16.8
0.0
2015A
Sales Volume (bn gloves)
46.35
43.2
45.4
40
37.08
36.7
33.1
27.81
18.54
9.27
0.00
2015A
2016A
2017F
2018F
2019F
9.76
9.78
9.76
2017F
2018F
2019F
EBIT/k gloves (RM)
11.5
11.4
10.4
9.2
6.9
4.6
2.3
0.0
2015A
2016A
Gain from incoming
incoming nitrile. The recent capacity expansion has
been geared towards nitrile gloves as they believe there will be
stronger demand for nitrile gloves. Current product mix stands
at 65:35 (natural rubber : nitrile). This could move towards
60:40 once incoming capacity kicks in. We expect Top Glove
earnings to improve from its expansion in nitrile glove as it
offers better margins.
Source: Company, AllianceDBS
ASIAN INSIGHTS
VICKERS SECURITIES
Page 15
Company Guide
Top Glove Corporation
Balance Sheet:
Solid balance sheet. Top Glove is a strong cash generator, and
we expect the group to remain in net cash position in FY17-19F.
Backed by rising operating cash flow of RM431m-530m amid
limited capex of RM200m p.a. over FY17-19F, we expect the
cash pile to rise from RM224m in FY16 to RM518m by FY19F.
In addition, the group has significant short-term investments
(RM480m in FY16) which can be liquidated when required. The
large cash pile should be sufficient to fund Top Glove’s dividend
payments and any M&A opportunities that may arise..
Share Price Drivers:
Increased market volatility. Malaysian-listed glove makers have
been generally regarded as defensive and a safe haven by
investors, given their resilient earnings outlook backed by: (1)
the cost pass-through mechanism, (2) stable demand for
medical glove products, and (3) exposure to global markets (not
dependent on a single geographical region). As such, share
prices in the sector tend to react favourably during periods of
increasing market volatility.
Leverage & Asset Turnover (x)
0.45
1.2
0.40
0.35
1.2
0.30
0.25
1.1
0.20
0.15
1.1
0.10
0.05
0.00
1.0
2015A
2016A
2017F
Gross Debt to Equity (LHS)
2018F
2019F
Asset Turnover (RHS)
Capital Expenditure
RMm
220.0
215.0
210.0
205.0
200.0
195.0
190.0
2015A
2016A
2017F
2018F
2019F
Capital Expenditure (-)
Earnings outlook. Top Glove’s earnings are a function of two
variables: (1) sales volume, and (2) unit profitability (EBIT/k
gloves). We do not expect Top Glove’s sales volume growth to
exceed 6-8% p.a., except during periods of abnormal demand
(i.e. pandemic outbreaks). Unit profitability is influenced by the
competitive environment, productivity, and macroeconomic
factors (i.e. currency movements, raw material prices, etc.)
ROE (%)
20.0%
15.0%
10.0%
5.0%
Key Risks:
Rising competition could erode margins.
margins Competition is
heating up in the glove sector with several glove makers
undertaking aggressive expansion plans, which could see unit
profitability (EBIT/k gloves) suffer going forward. However, Top
Glove will be relatively better off than its peers, as its core
natural rubber glove products will see relatively less
competition than nitrile gloves, because of better supplydemand dynamics.
0.0%
2015A
2016A
2017F
2018F
2019F
Forward PE Band (x)
26.8
(x)
+2sd: 23.5x
21.8
+1sd: 19.5x
16.8
Avg: 15.5x
Company Background
Top Glove is the world’s largest rubber glove manufacturer
with an annual production capacity of 48.0bn gloves. Natural
rubber gloves make up the lion’s share of its product mix
(63%), while nitrile rubber gloves account for 30%. Vinyl and
surgical gloves account for the rest. Currently, the group’s
manufacturing facilities are located in Malaysia, Thailand, and
Indonesia.
11.8
-1sd: 11.6x
6.8
Jan-13
-2sd: 7.6x
Jan-14
Jan-15
Jan-16
PB Band (x)
(x)
5.3
4.8
4.3
+2sd: 4.24x
3.8
+1sd: 3.55x
3.3
Avg: 2.85x
2.8
2.3
-1sd: 2.16x
1.8
1.3
Jan-13
-2sd: 1.46x
Jan-14
Jan-15
Jan-16
Source: Company, AllianceDBS
ASIAN INSIGHTS
Page 16
VICKERS SECURITIES
Company Guide
Top Glove Corporation
Key Assumptions
FY Aug
Capacity (bn gloves)
Utilisation rate (%)
Sales Volume (bn gloves)
EBIT/k gloves (RM)
Income Statement (RMm)
FY Aug
Revenue
Cost of Goods Sold
Gross Profit
Other Opng (Exp)/Inc
Operating Profit
Other Non Opg (Exp)/Inc
Associates & JV Inc
Net Interest (Exp)/Inc
Exceptional Gain/(Loss)
PrePre-tax Profit
Tax
Minority Interest
Preference Dividend
Net Profit
Net Profit before Except.
EBITDA
Growth
Revenue Gth (%)
EBITDA Gth (%)
Opg Profit Gth (%)
Net Profit Gth (Pre-ex) (%)
Margins & Ratio
Gross Margins (%)
Opg Profit Margin (%)
Net Profit Margin (%)
ROAE (%)
ROA (%)
ROCE (%)
Div Payout Ratio (%)
Net Interest Cover (x)
2015A
2015A
2016A
2016A
2017F
2017F
2018F
2018F
2019F
2019F
43.9
75.2
33.1
10.4
44.6
82.3
36.7
11.4
48.7
82.0
40.0
9.76
54.0
80.0
43.2
9.78
56.8
80.0
45.4
9.76
2015A
2015A
2016A
2016A
2017F
2017F
2018F
2018F
2019F
2019F
2,511
(1,956)
555
(200)
355
0.0
(11.7)
20.6
0.0
364
(82.4)
(1.4)
0.0
280
280
440
2,889
(2,293)
596
(180)
416
0.0
1.28
25.4
0.0
442
(79.8)
(1.7)
0.0
361
361
525
3,306
(2,723)
584
(195)
389
0.0
1.28
33.2
0.0
423
(76.4)
(1.7)
0.0
345
345
510
3,574
(2,947)
627
(206)
421
0.0
1.28
38.9
0.0
462
(83.3)
(1.7)
0.0
377
377
556
3,760
(3,107)
653
(211)
442
0.0
1.28
57.4
0.0
501
(90.4)
(1.7)
0.0
409
409
590
10.3
43.9
68.0
51.5
15.1
19.2
17.2
28.9
14.5
(2.8)
(6.4)
(4.3)
8.1
9.0
8.4
9.1
5.2
6.2
5.0
8.6
22.1
14.1
11.1
18.6
12.1
15.3
51.3
NM
20.6
14.4
12.5
21.1
13.5
16.9
50.4
NM
17.7
11.8
10.4
18.2
12.5
16.1
50.4
NM
17.5
11.8
10.5
18.2
12.6
16.4
50.4
NM
17.4
11.8
10.9
17.9
12.7
17.0
50.4
NM
Source: Company, AllianceDBS
ASIAN INSIGHTS
VICKERS SECURITIES
Page 17
Company Guide
Top Glove Corporation
Quarterly / Interim Income Statement (RMm)
1Q2016
2Q2016
FY Aug
1Q2016
2Q2016
Revenue
Cost of Goods Sold
Gross Profit
Other Oper. (Exp)/Inc
Operating Profit
Other Non Opg (Exp)/Inc
Associates & JV Inc
Net Interest (Exp)/Inc
Exceptional Gain/(Loss)
PrePre-tax Profit
Tax
Minority Interest
Net Profit
Net profit bef Except.
EBITDA
3Q2016
3Q2016
4Q2016
4Q2016
1Q2017
1Q2017
800
(593)
207
(51.0)
156
0.0
0.04
5.41
0.0
161
(32.4)
(0.6)
128
128
183
694
(520)
174
(49.5)
125
0.0
0.09
6.96
0.0
132
(26.6)
(0.6)
105
105
152
672
(558)
115
(48.1)
66.6
0.0
0.62
6.54
0.0
73.7
(11.0)
(0.3)
62.5
62.5
93.7
722
(607)
115
(45.1)
69.9
0.0
0.52
5.39
0.0
75.8
(9.9)
(0.2)
65.6
65.6
97.4
786
(647)
138
(52.2)
86.1
0.0
(0.9)
4.53
0.0
89.8
(16.1)
(0.3)
73.3
73.3
111
12.8
19.5
16.8
24.5
(13.3)
(17.2)
(19.9)
(18.5)
(3.1)
(38.3)
(46.6)
(40.3)
7.4
4.0
4.9
5.1
8.8
14.4
23.2
11.7
25.8
19.5
16.0
25.1
18.0
15.1
17.1
9.9
9.3
15.9
9.7
9.1
17.6
11.0
9.3
Balance Sheet (RMm)
FY Aug
2015A
2015A
2016A
2016A
2017F
2017F
2018F
2018F
2019F
2019F
Net Fixed Assets
Invts in Associates & JVs
Other LT Assets
Cash & ST Invts
Inventory
Debtors
Other Current Assets
Total Assets
1,067
5.14
143
816
252
381
24.2
2,688
1,196
3.96
112
703
264
346
24.2
2,649
1,276
5.24
112
737
313
396
24.2
2,864
1,343
6.51
112
848
339
428
24.2
3,101
1,396
7.79
112
997
357
450
24.2
3,344
ST Debt
Creditor
Other Current Liab
LT Debt
Other LT Liabilities
Shareholder’s Equity
Minority Interests
Total Cap. & Liab.
530
326
64.2
106
47.2
1,608
6.43
2,688
318
332
40.9
81.6
50.8
1,818
7.83
2,649
318
394
40.9
81.6
50.8
1,969
9.54
2,864
318
427
40.9
81.6
50.8
2,171
11.3
3,101
318
450
40.9
81.6
50.8
2,390
13.0
3,344
Non-Cash Wkg. Capital
Net Cash/(Debt)
Debtors Turn (avg days)
Creditors Turn (avg days)
Inventory Turn (avg days)
Asset Turnover (x)
Current Ratio (x)
Quick Ratio (x)
Net Debt/Equity (X)
Net Debt/Equity ex MI (X)
Capex to Debt (%)
Z-Score (X)
267
180
48.7
58.3
45.1
1.1
1.6
1.3
CASH
CASH
31.4
5.9
260
304
45.9
55.0
43.1
1.1
1.9
1.5
CASH
CASH
54.3
7.4
298
338
40.9
51.0
40.4
1.2
2.0
1.5
CASH
CASH
50.1
7.2
323
449
42.0
53.3
42.3
1.2
2.1
1.6
CASH
CASH
50.1
7.1
340
597
42.6
54.1
42.9
1.2
2.3
1.8
CASH
CASH
50.1
7.0
Growth
Revenue Gth (%)
EBITDA Gth (%)
Opg Profit Gth (%)
Net Profit Gth (Pre-ex) (%)
Margins
Gross Margins (%)
Opg Profit Margins (%)
Net Profit Margins (%)
Source: Company, AllianceDBS
ASIAN INSIGHTS
Page 18
VICKERS SECURITIES
Company Guide
Top Glove Corporation
Cash Flow Statement (RMm)
FY Aug
Pre-Tax Profit
Dep. & Amort.
Tax Paid
Assoc. & JV Inc/(loss)
Chg in Wkg.Cap.
Other Operating CF
Net Operating CF
Capital Exp.(net)
Other Invts.(net)
Invts in Assoc. & JV
Div from Assoc & JV
Other Investing CF
Net Investing CF
Div Paid
Chg in Gross Debt
Capital Issues
Other Financing CF
Net Financing CF
Currency Adjustments
Chg in Cash
Opg CFPS (sen)
Free CFPS (sen)
2015A
2015A
2016A
2016A
2017F
2017F
2018F
2018F
2019F
2019F
364
97.3
(55.6)
11.7
(67.2)
(15.8)
334
(200)
(524)
0.0
3.98
77.8
(642)
(105)
364
2.92
0.0
262
2.98
(42.5)
32.1
10.8
442
108
(98.5)
(1.3)
25.6
(42.2)
434
(217)
149
0.0
2.26
31.3
(34.4)
(169)
(198)
38.9
0.0
(328)
6.62
77.9
32.5
17.3
423
120
(76.4)
(1.3)
(37.2)
0.0
428
(200)
0.0
0.0
0.0
0.0
(200)
(195)
0.0
0.0
0.0
(195)
0.0
33.9
37.1
18.2
462
133
(83.3)
(1.3)
(25.4)
0.0
485
(200)
0.0
0.0
0.0
0.0
(200)
(174)
0.0
0.0
0.0
(174)
0.0
111
40.7
22.7
501
147
(90.4)
(1.3)
(17.4)
0.0
539
(200)
0.0
0.0
0.0
0.0
(200)
(190)
0.0
0.0
0.0
(190)
0.0
149
44.3
27.0
Source: Company, AllianceDBS
Target Price & Ratings History
RM
6.99
6.49
5.99
5.49
1
10
2
8
6
4.99
9
4
4.49
5
7
3
3.99
Jan-16
May-16
Note
1212-mth
Target
Price
S.No.
Date of
Report
Closing
Price
1:
11 Feb 16
5.63
7.10
BUY
2:
17 Mar 16
5.26
7.10
BUY
3:
16 Jun 16
4.70
7.10
BUY
4:
23 Jun 16
4.67
6.00
BUY
5:
13 Oct 16
5.01
6.00
BUY
6:
19 Oct 16
5.00
4.30
HOLD
7:
07 Nov 16
4.80
4.30
HOLD
8:
16 Dec 16
5.12
4.30
HOLD
9:
20 Dec 16
5.23
4.30
HOLD
10:
06 Jan 17
5.33
4.80
HOLD
Rating
Sep-16
: Share price and Target price are adjusted for corporate actions.
Source: AllianceDBS
Analyst: Siti Ruzanna MOHD FARUK
ASIAN INSIGHTS
VICKERS SECURITIES
Page 19
Malaysia Company Guide
Kossan Rubber Industries
Refer to important disclosures at the end of this report
Version 6 | Bloomberg: KRI MK | Reuters: KRIB.KL
DBS Group Research . Equity
9 Jan 2017
HOLD
Revamp works in progress
Last Traded Price ( 6 Jan 2017)
KLCI : 1,675.49)
2017): RM6.49 (KLCI
Price Target 1212-mth:
mth: RM6.30 (-3% downside) (Prev RM6.30)
Where we differ:
differ: Our forecast is below consensus
Analyst
Siti Ruzanna MOHD FARUK +603 2604 3965
[email protected]
Price Relative
RM
Relative Index
10.5
590
9.5
8.5
490
7.5
6.5
390
5.5
290
4.5
3.5
Maintain HOLD. We maintain our HOLD rating and RM6.30 TP
for Kossan Rubber Industries (Kossan). We like the stock for its
clear expansion plan, but the share price has largely priced in
the near-term earnings prospects.
To build two new plants each year. Kossan has recently
commissioned its three new glove plants #13, #14, and #15,
taking its annual capacity to 22bn gloves. Going forward, it
targets to build two new plants each year over the next five
years, bringing its total capacity to 43.5bn gloves p.a. (+98%
from current capacity). There are two plants on the way with
7.5bn gloves p.a. capacity expected to be completed from 3Q17
onwards. The revamp and modification of old plants will also
add onto capacity and improve efficiency.
190
2.5
1.5
Jan-13
Jan-14
Jan-15
Kossan Rubber Industries (LHS)
Forecasts and Valuation
FY Dec (RM m)
Revenue
EBITDA
Pre-tax Profit
Net Profit
Net Pft (Pre Ex.)
Net Pft Gth (Pre-ex) (%)
EPS (sen)
EPS Pre Ex. (sen)
EPS Gth Pre Ex (%)
Diluted EPS (sen)
Net DPS (sen)
BV Per Share (sen)
PE (X)
PE Pre Ex. (X)
P/Cash Flow (X)
EV/EBITDA (X)
Net Div Yield (%)
P/Book Value (X)
Net Debt/Equity (X)
ROAE (%)
2015A
2015A
1,640
343
269
203
203
39.1
31.7
31.7
39
31.7
12.0
149
20.5
20.5
15.8
12.3
1.8
4.4
0.1
23.0
Earnings Rev (%):
Consensus EPS (sen
sen):
sen :
Other Broker Recs:
Jan-16
90
Jan-17
Relative KLCI (RHS)
2016F
2016F
1,838
320
245
184
184
(9.0)
28.8
28.8
(9)
28.8
14.4
164
22.5
22.5
19.4
13.2
2.2
4.0
0.0
18.4
2017F
2017F
2,019
371
296
224
224
21.5
35.0
35.0
22
35.0
17.5
183
18.5
18.5
16.1
11.2
2.7
3.5
CASH
20.2
2018F
2018F
2,382
413
339
257
257
14.7
40.2
40.2
15
40.2
20.1
204
16.2
16.2
16.4
10.0
3.1
3.2
CASH
20.7
0
29.6
B: 6
0
35.7
S: 2
0
41.4
H: 10
Source of all data on this page: Company, AllianceDBS, Bloomberg
Finance L.P
Adjusted earnings to reflect higher USD and lower ASP. We
adjust our FY16/17/18F earnings by -14%/-3%/-10%, as we
increase our USD assumptions from RM4.10 previously to
RM4.10 - 4.22. We are reducing our ASP from USD21.64
previously to USD21.19 for FY16F/17F/18F, as we believe the
intense competition may cap ASP moving forward.
Valuation:
Maintain HOLD. We retain our HOLD rating for the stock with
a revised TP of RM6.30 following the earnings cut. Our TP is
based on 18x FY17F PE. Our target PE multiple of 18x which is
+0.5SD of its 5-year mean reflects the medium-term growth
prospects of Kossan arising from capacity ramp-up.
Key Risks to Our View:
Rising competition could erode margins. Kossan is facing rising
competition as the other glove makers are crowding into the
nitrile glove segment. This could pressure Kossan’s unit
profitability going forward.
At A Glance
Issued Capital (m shrs)
Mkt. Cap (RMm/US$m)
Major Shareholders (%)
Kossan Holdings
Kumpulan Wang Persaraan (Diperbadankan)
KWAP
Free Float (%)
3m Avg. Daily Val (US$m)
ICB Industry : Health Care / Health Care Equipment & Servic
ASIAN INSIGHTS
ed: CK / sa:BC, PY
639
4,150 / 928
51.9
7.6
40.5
0.59
VICKERS SECURITIES
Company Guide
Kossan Rubber Industries
Capacity (m gloves)
CRITICAL DATA POINTS TO WATCH
28000
28280.0
Earnings Drivers:
85 acres of landbank ready for development. Kossan has
recently commissioned its three new nitrile glove plants - #13,
#14 and #15 – taking its annual production capacity to 22bn
gloves p.a. Over the next five years, it plans to build two new
plants each year, which will add 4-4.5bn gloves capacity p.a.
Also, there are plans to revamp the existing older lines to
improve efficiency. Based on this, we forecast Kossan’s capacity
will grow by 3%/7%/19% in FY16/17/18F.
24240.0
Sales volume to grow at 13% CAGR.
CAGR We expect group
utilisation rate to increase to 85% in FY16F and drop to 83% in
FY17/18F because of new capacity from upcoming plants.
Hence, we expect Kossan to grow its sales volume by
13%/7%/19% in FY16/17/18F.
84.7
EBIT/k gloves is a better metric to assess profitability. We assess
Kossan’s profitability by looking at unit profitability (i.e. EBIT/k
gloves), rather than profit margins. This is because profit
margins can fluctuate wildly even if there is no change in
underlying profitability, as Kossan has a cost pass-through
pricing strategy (which has a lag of 1-2 months). Under this
pricing mechanism, profit margins can rise even when costs are
falling (i.e. same level of profit on lower ASP), and margins can
drop when costs are rising (i.e. same level of profit on higher
ASP), with no impact on the bottom line.
16.9
Efficiency gains to boost unit profitability. Since the USD-MYR
has been volatile, Kossan has to rely on efficiency gains to
improve its profitability. The group will continue to focus on its
enhancement initiatives and introduce its patented acceleratorfree nitrile gloves and other special gloves in order to minimise
the impact from pricing competition. We project Kossan’s EBIT/k
gloves to decline by 22% in FY16F, and +14%/-4% in
FY17/18F. Our forecasts assume average USDMYR forex rate of
RM4.10 /4.22/4.22 in FY16/17/18F, which is in line with DBS
economics team’s forecast.
21450
22000
2015A
2016F
23500
20200.0
16160.0
16400
12120.0
8080.0
4040.0
0.0
2014A
2017F
2018F
83
83
83
2016F
2017F
2018F
Utilisation rate (%)
78.2
75.3
67.7
50.8
33.9
0.0
2014A
2015A
Output (m gloves)
23240
23704.80
18260
18963.84
19505
16155
14222.88
12821
9481.92
4740.96
0.00
2014A
2015A
2016F
2017F
2018F
EBIT/k gloves (RM)
16.1
16.3
14.1
13.8
13.5
12.4
13.0
9.8
6.5
3.3
Increasingly
Increasingly a nitrilenitrile-focused glove maker. Kossan’s incoming
production lines are capable of producing both latex and nitrile
gloves, but it plans to use them to produce nitrile gloves, given
the stronger demand for nitrile gloves. As such, Kossan’s sales
mix is expected to increasingly tilt towards nitrile gloves, from
70% in FY15 to 80%/80% in FY16/17F.
0.0
2014A
2015A
2016F
2017F
2018F
Source: Company, AllianceDBS
ASIAN INSIGHTS
VICKERS SECURITIES
Page 21
Company Guide
Kossan Rubber Industries
Balance Sheet:
Solid balance sheet. Kossan is a strong cash generator, and we
expect the group’s net gearing to decline from 0.06x in FY15,
to 0.01x in FY16F, before turning net cash in FY17/18F. This
should provide Kossan with sufficient headroom to fund both
its dividend payments and expansion plans. In our forecasts, we
assume Kossan will pay 50% of net profit as dividends, and
annual capex would be RM100m in FY16-18F.
Leverage & Asset Turnover (x)
0.35
1.3
0.30
1.3
0.25
1.2
0.20
1.2
0.15
1.1
0.10
1.1
0.05
0.00
1.0
2014A
Share Price Drivers:
Increasing market volatility. Malaysian-listed glove makers are
generally regarded as defensive and a safe haven by investors,
given their resilient earnings outlook backed by: (1) the cost
pass-through pricing mechanism, (2) stable demand for medical
glove products, and (3) exposure to a global market (not
dependent on a single geographical region). As such, the share
prices of stocks in the sector tend to react favourably during
periods of increasing market volatility.
2015A
2016F
Gross Debt to Equity (LHS)
2017F
2018F
Asset Turnover (RHS)
Capital Expenditure
RMm
160.0
140.0
120.0
100.0
80.0
60.0
40.0
20.0
Earnings outlook. Kossan’s earnings are a function of two
variables: (1) sales volume, and (2) unit profitability (EBIT/k
gloves). We expect Kossan’s sales volume to surge in
FY16/17/18F, from the incoming capacity. Unit profitability is
influenced by the competitive environment, productivity, and
macroeconomic factors (i.e. currency movements, raw material
prices, etc.).
Key Risks:
Rising competition could erode margins. Kossan is facing rising
competition as the other glove makers are crowding into the
nitrile glove segment. This could pressure Kossan’s unit
profitability going forward, as it is increasingly becoming a
nitrile-focused glove maker.
0.0
2014A
2015A
2016F
2017F
2018F
Capital Expenditure (-)
ROE (%)
20.0%
15.0%
10.0%
5.0%
0.0%
2014A
2015A
2016F
2017F
2018F
Forward PE Band (x)
(x)
Delay in its expansion plans. A delay in Kossan’s expansion
plans will adversely affect earnings growth, considering that
profitability could be undermined by stiff competition. Delays
typically occur during the commissioning of the production
lines.
Company Background
Kossan manufactures latex, nitrile, cleanroom and surgical
gloves. It also produces technical rubber products for the
automotive, industrial and construction sectors.
31.3
+2sd: 28.7x
26.3
+1sd: 23.3x
21.3
Avg: 17.8x
16.3
-1sd: 12.4x
11.3
6.3
Jan-13
-2sd: 7x
Jan-14
Jan-15
Jan-16
PB Band (x)
(x)
6.5
+2sd: 5.9x
5.5
+1sd: 4.87x
4.5
Avg: 3.84x
3.5
-1sd: 2.81x
2.5
1.5
Jan-13
-2sd: 1.78x
Jan-14
Jan-15
Jan-16
Source: Company, AllianceDBS
ASIAN INSIGHTS
Page 22
VICKERS SECURITIES
Company Guide
Kossan Rubber Industries
Key Assumptions
FY Dec
2014A
2014A
2015A
2015A
2016F
2016F
2017F
2017F
2018F
2018F
Capacity (m gloves)
Utilisation rate (%)
Output (m gloves)
EBIT/k gloves (RM)
16,400
78.2
12,821
13.8
21,450
75.3
16,155
16.1
22,000
83.0
18,260
12.4
23,500
83.0
19,505
14.1
28,000
83.0
23,240
13.5
Segmental Breakdown
FY Dec
2014A
2014A
2015A
2015A
2016F
2016F
2017F
2017F
2018F
2018F
1,097
162
42.8
0.0
0.0
1,302
1,411
160
68.2
0.0
0.0
1,640
1,588
168
81.9
0.0
0.0
1,838
1,744
177
98.3
0.0
0.0
2,019
2,078
185
118
0.0
0.0
2,382
177
14.6
1.83
(0.6)
0.0
192
260
12.2
5.15
(1.1)
0.0
277
226
16.8
6.55
(1.1)
0.0
248
275
17.7
7.86
(1.1)
0.0
299
314
18.6
9.43
(1.1)
0.0
341
16.1
9.0
4.3
N/A
N/A
14.8
18.4
7.6
7.6
N/A
N/A
16.9
14.2
10.0
8.0
N/A
N/A
13.5
15.8
10.0
8.0
N/A
N/A
14.8
15.1
10.0
8.0
N/A
N/A
14.3
2014A
2014A
2015A
2015A
2016F
2016F
2017F
2017F
2018F
2018F
1,302
(1,010)
291
(98.7)
193
0.0
0.0
(5.8)
0.0
187
(37.9)
(3.2)
0.0
146
146
249
1,640
(1,279)
361
(84.2)
277
0.0
0.0
(8.0)
0.0
269
(62.3)
(3.8)
0.0
203
203
343
1,838
(1,501)
336
(84.2)
252
0.0
0.0
(7.4)
0.0
245
(56.7)
(3.8)
0.0
184
184
320
2,019
(1,632)
388
(84.2)
303
0.0
0.0
(6.9)
0.0
296
(68.7)
(3.8)
0.0
224
224
371
2,382
(1,952)
429
(84.2)
345
0.0
0.0
(5.9)
0.0
339
(78.6)
(3.8)
0.0
257
257
413
(0.4)
5.6
4.5
6.7
25.9
38.2
43.6
39.1
12.1
(7.0)
(8.8)
(9.0)
9.9
16.1
20.3
21.5
18.0
11.4
13.8
14.7
22.4
14.8
11.2
19.3
12.2
15.0
35.1
33.0
22.0
16.9
12.4
23.0
14.6
17.9
37.9
34.6
18.3
13.7
10.0
18.4
11.9
14.7
50.0
34.0
19.2
15.0
11.1
20.2
13.3
16.2
50.0
43.7
18.0
14.5
10.8
20.7
13.9
16.9
50.0
58.6
Revenues (RMm)
Gloves
Technical Rubber
Cleanroom products
division
Others
Others
Total
EBIT (RMm)
Gloves
Technical Rubber
Cleanroom products
division
Others
Others
Total
EBIT Margins (%)
Gloves
Technical Rubber
Cleanroom products
division
Others
Others
Total
Income Statement (RMm)
FY Dec
Revenue
Cost of Goods Sold
Gross Profit
Other Opng (Exp)/Inc
Operating Profit
Other Non Opg (Exp)/Inc
Associates & JV Inc
Net Interest (Exp)/Inc
Exceptional Gain/(Loss)
PrePre-tax Profit
Tax
Minority Interest
Preference Dividend
Net Profit
Net Profit before Except.
EBITDA
Growth
Revenue Gth (%)
EBITDA Gth (%)
Opg Profit Gth (%)
Net Profit Gth (Pre-ex) (%)
Margins & Ratio
Gross Margins (%)
Opg Profit Margin (%)
Net Profit Margin (%)
ROAE (%)
ROA (%)
ROCE (%)
Div Payout Ratio (%)
Net Interest Cover (x)
Source: Company, AllianceDBS
ASIAN INSIGHTS
VICKERS SECURITIES
Page 23
Company Guide
Kossan Rubber Industries
Quarterly / Interim Income Statement (RMm)
3Q2015
4Q2015
FY Dec
3Q2015
4Q2015
Revenue
Cost of Goods Sold
Gross Profit
Other Oper. (Exp)/Inc
Operating Profit
Other Non Opg (Exp)/Inc
Associates & JV Inc
Net Interest (Exp)/Inc
Exceptional Gain/(Loss)
PrePre-tax Profit
Tax
Minority Interest
Net Profit
Net profit bef Except.
EBITDA
1Q2016
1Q2016
2Q2016
2Q2016
3Q2016
3Q2016
442
(369)
72.5
0.44
73.0
0.0
0.0
(2.1)
0.0
70.9
(14.7)
(0.9)
55.2
55.2
90.4
439
(359)
79.7
0.67
80.4
0.0
0.0
(1.9)
0.0
78.5
(21.9)
(1.4)
55.2
55.2
97.3
412
(345)
67.4
0.54
67.9
0.0
0.0
(2.2)
0.0
65.7
(13.3)
(1.0)
51.3
51.3
85.3
404
(351)
53.0
0.03
53.0
0.0
0.0
(2.3)
0.0
50.7
(8.9)
(0.9)
41.0
41.0
70.3
414
(370)
43.8
0.80
44.6
0.0
0.0
(2.0)
0.0
42.6
(7.9)
(0.7)
34.0
34.0
62.3
14.5
15.5
17.1
16.3
(0.6)
7.7
10.2
0.1
(6.1)
(12.4)
(15.6)
(7.1)
(2.1)
(17.5)
(21.9)
(20.1)
2.5
(11.5)
(15.8)
(17.0)
16.4
16.5
12.5
18.2
18.3
12.6
16.3
16.5
12.4
13.1
13.1
10.1
10.6
10.8
8.2
Balance Sheet (RMm)
FY Dec
2014A
2014A
2015A
2015A
2016F
2016F
2017F
2017F
2018F
2018F
Net Fixed Assets
Invts in Associates & JVs
Other LT Assets
Cash & ST Invts
Inventory
Debtors
Other Current Assets
Total Assets
725
0.0
5.05
72.0
194
287
7.84
1,290
771
0.0
10.3
168
206
319
2.06
1,476
804
0.0
10.3
194
241
357
2.06
1,609
836
0.0
10.3
250
262
392
2.06
1,754
868
0.0
10.3
284
314
463
2.06
1,941
ST Debt
Creditor
Other Current Liab
LT Debt
Other LT Liabilities
Shareholder’s Equity
Minority Interests
Total Cap. & Liab.
143
170
22.8
63.4
62.5
807
21.0
1,290
120
186
18.2
103
72.4
951
25.5
1,476
120
218
18.2
103
72.4
1,048
29.3
1,609
120
237
18.2
103
72.4
1,169
33.1
1,754
120
284
18.2
103
72.4
1,306
36.9
1,941
Non-Cash Wkg. Capital
Net Cash/(Debt)
Debtors Turn (avg days)
Creditors Turn (avg days)
Inventory Turn (avg days)
Asset Turnover (x)
Current Ratio (x)
Quick Ratio (x)
Net Debt/Equity (X)
Net Debt/Equity ex MI (X)
Capex to Debt (%)
Z-Score (X)
295
(134)
74.9
59.7
65.5
1.1
1.7
1.1
0.2
0.2
67.9
8.2
322
(54.9)
67.4
53.7
60.1
1.2
2.1
1.5
0.1
0.1
43.1
8.1
364
(29.0)
67.1
51.5
56.9
1.2
2.2
1.5
0.0
0.0
44.8
7.9
401
27.2
67.7
53.2
58.8
1.2
2.4
1.7
CASH
CASH
44.8
7.8
477
60.5
65.5
50.5
55.8
1.3
2.5
1.8
CASH
CASH
44.8
7.6
Growth
Revenue Gth (%)
EBITDA Gth (%)
Opg Profit Gth (%)
Net Profit Gth (Pre-ex) (%)
Margins
Gross Margins (%)
Opg Profit Margins (%)
Net Profit Margins (%)
Source: Company, AllianceDBS
ASIAN INSIGHTS
Page 24
VICKERS SECURITIES
Company Guide
Kossan Rubber Industries
Cash Flow Statement (RMm)
FY Dec
Pre-Tax Profit
Dep. & Amort.
Tax Paid
Assoc. & JV Inc/(loss)
Chg in Wkg.Cap.
Other Operating CF
Net Operating CF
Capital Exp.(net)
Other Invts.(net)
Invts in Assoc. & JV
Div from Assoc & JV
Other Investing CF
Net Investing CF
Div Paid
Chg in Gross Debt
Capital Issues
Other Financing CF
Net Financing CF
Currency Adjustments
Chg in Cash
Opg CFPS (sen)
Free CFPS (sen)
2014A
2014A
2015A
2015A
2016F
2016F
2017F
2017F
2018F
2018F
187
55.9
(38.4)
0.0
(43.4)
3.91
164
(140)
(8.1)
0.0
0.0
0.14
(148)
(44.8)
(4.2)
0.0
(5.0)
(53.9)
0.17
(37.4)
32.5
3.81
269
66.9
(38.0)
0.0
(36.2)
1.57
263
(96.3)
8.17
0.0
0.0
0.15
(88.0)
(64.5)
1.24
0.0
(5.9)
(69.2)
1.99
108
46.8
26.0
245
67.4
(56.7)
0.0
(41.9)
0.0
214
(100.0)
0.0
0.0
0.0
0.0
(100.0)
(87.6)
0.0
0.0
0.0
(87.6)
0.0
25.9
39.9
17.8
296
67.8
(68.7)
0.0
(37.2)
0.0
258
(100.0)
0.0
0.0
0.0
0.0
(100.0)
(102)
0.0
0.0
0.0
(102)
0.0
56.2
46.2
24.7
339
68.3
(78.6)
0.0
(75.3)
0.0
253
(100.0)
0.0
0.0
0.0
0.0
(100.0)
(120)
0.0
0.0
0.0
(120)
0.0
33.3
51.4
24.0
Source: Company, AllianceDBS
Target Price & Ratings History
RM
9.16
8.66
8.16
7.66
7.16
6.66
2
4
1
6
Dat e of
Report
Closing
Pric e
1:
11 Feb 16
6.84
9.00
2:
24 Feb 16
6.75
6.60
HOLD
3:
25 May 16
6.80
6.50
HOLD
4:
26 May 16
6.65
6.50
HOLD
5:
24 Aug 16
6.21
6.50
HOLD
6:
23 Nov 16
6.60
6.30
HOLD
7:
20 Dec 16
6.35
6.30
HOLD
8:
29 Dec 16
6.49
6.30
HOLD
HOLD
3
6.16
5
5.66
Jan-16
8
12- mt h
T arget Rat ing
Pric e
S.No.
May-16
7
Sep-16
Not e : Share price and Target price are adjusted for corporate actions.
Source: AllianceDBS
Analyst: Siti Ruzanna MOHD FARUK
ASIAN INSIGHTS
VICKERS SECURITIES
Page 25
Malaysia Company Guide
Supermax Corp
Refer to important disclosures at the end of this report
Version 5 | Bloomberg: SUCB MK | Reuters: SUPM.KL
DBS Group Research . Equity
9 Jan 2017
HOLD
Earnings capped
Last Traded Price ( 6 Jan 2017)
KLCI : 1,675.49)
2017): RM2.15 (KLCI
Price Target 1212-mth:
mth: RM2.45 (14% upside) (Prev RM2.45)
Where we differ:
differ: Our forecast is below consensus
Analyst
Siti Ruzanna MOHD FARUK +603 2604 3965
[email protected]
Plants #10 and #11 have a better outlook now that 10 out of
20 lines are fully commissioned. The remaining 10 lines are
scheduled for commissioning by end-2016. The group’s
utilisation rate dropped marginally by 1.7ppts y-o-y to 81.6% in
FY16, as plants #10 and #11 came online, and this is expected
to recover to 83% in FY17F. We expect the additional capacity
from Bukit Kapar to drag its utilisation rate down again in
FY18F. As such, we expect sales volume to grow by
10%/10%/10% in FY17/18/19F.
Price Relative
RM
Relative Index
212
3.4
192
172
2.9
152
2.4
132
112
1.9
92
1.4
Jan-13
Jan-14
Jan-15
Supermax Corp (LHS)
72
Jan-17
Jan-16
Relative KLCI (RHS)
Forecasts and Valuation
FY Jun (RM m)
2016A
2016A*
Revenue
1,550
EBITDA
271
Pre-tax Profit
207
Net Profit
144
Net Pft (Pre Ex.)
144
Net Pft Gth (Pre-ex) (%)
50.5
EPS (sen)
21.2
EPS Pre Ex. (sen)
21.2
EPS Gth Pre Ex (%)
51
Diluted EPS (sen)
21.2
Net DPS (sen)
5.92
BV Per Share (sen)
150
PE (X)
10.2
PE Pre Ex. (X)
10.2
P/Cash Flow (X)
5.8
EV/EBITDA (X)
6.3
Net Div Yield (%)
2.8
P/Book Value (X)
1.4
Net Debt/Equity (X)
0.3
ROAE (%)
14.8
2017F
2017F
1,245
214
157
122
122
(15.1)
18.0
18.0
(15)
18.0
5.03
162
12.0
12.0
7.3
7.7
2.3
1.3
0.2
11.5
2018F
2018F
1,369
231
173
135
135
10.3
19.8
19.8
10
19.8
5.55
177
10.8
10.8
9.6
7.1
2.6
1.2
0.2
11.7
Earnings Rev (%):
0
0
Consensus EPS (sen
sen):
19.0
19.6
sen :
Other Broker Recs:
B: 3
S: 2
* Change of FYE from December to June (effectively 18 months)
Retain HOLD rating. Our RM2.45 TP is based on 13x CY17F PE.
We cut FY17-19F net profit by 21% each, following the group’s
disappointing 1QFY17 results. Supermax has an ambitious
expansion plan, with multiple projects planned over the next
decade. However, poor access to proper infrastructure, i.e.
water, electricity and gas supply, has been holding back its
expansion plans.
2019F
2019F
1,506
249
190
148
148
10.0
21.8
21.8
10
21.8
6.10
193
9.9
9.9
9.0
6.5
2.8
1.1
0.1
11.8
0
20.9
H: 9
Source of all data on this page: Company, AllianceDBS, Bloomberg
Finance L.P
EBIT/k gloves to recover. We project EBIT/k gloves to be under
pressure in FY17, backed by: (1) higher operating costs, and (2)
higher raw material price. We conservatively assume EBIT/k
gloves to be flattish in FY18/19F.
Valuation:
Valuation capped. We maintain our target PE of 13x, based on
the stock’s 5-year mean. Following our earnings cut, our TP is
reduced to RM2.45 from RM2.70 previously.
Key Risks to Our View:
Delays in expansion plan. Supermax has seen repeated delays
in rolling out its new production lines because of poor access
to proper infrastructure. Further delays in the commissioning
of the remaining lines in plants #10 and #11 could adversely
affect our growth forecast. Currently, these two plants are
expected to reach full commercial production by end of 2016.
At A Glance
Issued Capital (m shrs)
Mkt. Cap (RMm/US$m)
Major Shareholders (%)
Dato’ Seri Stanley Thai
Datin Seri Tan Bee Geok, Cheryl
671
1,443 / 323
20.7
10.4
Free Float (%)
3m Avg. Daily Val (US$m)
ICB Industry : Health Care / Health Care Equipment & Services
ASIAN INSIGHTS
ed: CK / sa:BC, PY
91.1
0.77
VICKERS SECURITIES
Company Guide
Supermax Corp
Capacity (m gloves)
CRITICAL DATA POINTS TO WATCH
31916.0
31600
29700
27600
27356.6
Earnings Drivers:
Plants #10 and #11 finally on track. Supermax has an ambitious
expansion plan, with multiple projects planned over the next
decade. However, poor access to proper infrastructure, i.e.
water, electricity and gas supply, has been holding back its
expansion plans. The outlook for Plants #10 and #11 is better
now that 10 out of 20 lines are fully commissioned. The
remainder of the 10 lines with a capacity of 3.4bn gloves will be
commissioned by the end of 2016.
23600
22797.1
18237.7
9118.9
4559.4
0.0
2015A
2016A
2017F
2018F
2019F
Utilisation rate (%)
85.0
Sales volume to grow for FY17/18/19F. The utilisation rate had
dropped marginally by 1.7ppts y-o-y to 81.6% in FY16, as
plants #10 and #11 came online, and this is expected to recover
to 83% in FY17F. The additional capacity from Bukit Kapar will
see its utilisation rate drop again in FY18F. Premised on this, we
expect sales volume to grow by 10% p.a. in FY17/18/19F.
17675
13678.3
83.3
81.6
82.7
77.8
74.8
68.0
51.0
34.0
17.0
0.0
EBIT/k gloves is a better profitability metric than profit margins.
margins
This is because its profit margins can fluctuate even if there is
no change to unit profitability, as Supermax practises cost passthrough pricing (which has a time lag of 1-2 months). Under
this pricing mechanism, profit margins can rise when costs drop
(i.e. the same level of profits on lower ASP), and margins can
drop when costs rise (i.e. the same level of profits on higher
ASP), with no impact on the bottomline.
EBIT/k gloves to drop. We project EBIT/k gloves to decline in
FY17F, backed by: (1) higher operating costs, and (2) higher raw
material price. We conservatively assume EBIT/k gloves will be
flattish in FY18/19F.
Equal sales contribution from natural
natural rubber and nitrile
products. We expect this trend to remain, pending the
completion of the new plants. Plants #10 and #11 are expected
to take the natural rubber:nitrile mix to 45:55.
2015A
2016A
2017F
2018F
2019F
Output (m gloves)
24249
23628
21480
19527
19787.18
14840.39
14725
9893.59
4946.80
0.00
2015A
2016A
2017F
2018F
2019F
8.47
8.46
8.46
2017F
2018F
2019F
EBIT/k gloves (RM)
10.0
9.92
9.17
8.0
6.0
4.0
2.0
0.0
2015A
2016A
Source: Company, AllianceDBS
ASIAN INSIGHTS
VICKERS SECURITIES
Page 27
Company Guide
Supermax Corp
Balance Sheet:
Healthy balance sheet. We expect Supermax’s net gearing to
hover at 0.2-0.3x in FY17-18F. Backed by steady free cash flow
amid stable capex investment of c.RM100m p.a., we expect the
group’s cash pile to increase from RM125m in FY16 to
RM378m in FY19F. The healthy balance sheet suggests room to
gear up for its expansion plan once the infrastructure issues are
resolved.
Leverage & Asset Turnover (x)
1.1
0.50
1.1
1.0
0.40
1.0
0.30
0.9
0.9
0.20
0.8
0.10
0.8
0.00
0.7
2015A
Share Price Drivers:
Increased market volatility. Malaysian-listed glove makers are
generally considered defensive and a safe haven by investors,
given their resilient earnings are backed by: (1) the cost passthrough mechanism, (2) stable demand for medical glove
products, and (3) exposure to the global market (not to a single
geographical region). As such, share prices in the sector tend to
react favourably during periods of increasing market volatility.
2016A
2017F
Gross Debt to Equity (LHS)
2018F
2019F
Asset Turnover (RHS)
Capital Expenditure
RMm
250.0
200.0
150.0
100.0
50.0
Earnings outlook.
outlook Supermax’s earnings are a function of two
variables: (1) sales volume, and (2) unit profitability (EBIT/k
gloves). Assuming the successful commissioning of plants #10
and #11, sales volume could surge in FY16-17F, but its longerterm growth visibility remain clouded by the poor access to
proper infrastructure. Unit profitability is influenced by the
competitive environment, productivity and macroeconomic
factors (i.e. currency movements, raw material prices, etc.)
Currently, Supermax has yet to benefit from the stronger US$
and cheaper raw materials.
0.0
2015A
2016A
2017F
2018F
2019F
Capital Expenditure (-)
ROE (%)
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
Key Risks:
Rising competition will erode margins. The nitrile segment is
seeing increasing competition as glove makers are crowding
into the segment. Most of the capacity expansion in the
industry is currently geared towards the nitrile segment. This
will be a key challenge for Supermax in executing its nitrilefocused expansion plan.
Delay in expansion plan. Supermax has seen repeated delays
in rolling out its new production lines at Plants #10 and #11
because of poor access to proper infrastructure. The group’s
longer-term expansion plan may be derailed, if it fails to
resolve these infrastructure issues.
Company Background
Supermax is one of the five largest rubber glove makers in the
world. The group positions itself as an own-brand
manufacturer (OBM), compared to most of its competitors that
operate as original-equipment manufacturers (OEM).
2.0%
0.0%
2015A
2016A
2017F
2018F
2019F
Forward PE Band (x)
(x)
22.9
20.9
+2sd: 20.1x
18.9
+1sd: 17x
16.9
14.9
Avg: 13.9x
12.9
10.9
-1sd: 10.8x
8.9
6.9
Jan-13
-2sd: 7.7x
Jan-14
Jan-15
Jan-16
PB Band (x)
(x)
2.6
2.4
2.2
+2sd: 2.18x
2.0
+1sd: 1.92x
1.8
Avg: 1.67x
1.6
1.4
-1sd: 1.42x
1.2
-2sd: 1.16x
1.0
Jan-13
Jan-14
Jan-15
Jan-16
Source: Company, AllianceDBS
ASIAN INSIGHTS
Page 28
VICKERS SECURITIES
Company Guide
Supermax Corp
Key Assumptions
FY Jun
Capacity (m gloves)
Utilisation rate (%)
Output (m gloves)
EBIT/k gloves (RM)
Income Statement (RMm)
FY Jun
2015A
2015A
2016A
2016A*
2017F
2017F
2018F
2018F
2019F
2019F
17,675
83.3
14,725
9.92
29,700
81.7
24,249
9.17
23,600
82.7
19,527
8.47
27,600
77.8
21,480
8.46
31,600
74.8
23,628
8.46
2015A
2015A
2016A
2016A*
2017F
2017F
2018F
2018F
2019F
2019F
1,245
(885)
360
(208)
152
0.0
12.9
(8.6)
0.0
157
(34.5)
(0.1)
0.0
122
122
214
1,369
(994)
375
(208)
167
0.0
14.2
(8.6)
0.0
173
(38.1)
(0.1)
0.0
135
135
231
1,506
(1,114)
392
(208)
184
0.0
15.7
(9.5)
0.0
190
(41.9)
(0.1)
0.0
148
148
249
(19.7)
(21.0)
(26.1)
(15.1)
10.0
7.6
9.8
10.3
10.0
7.9
10.0
10.0
28.9
12.2
9.8
11.5
7.2
7.9
28.0
17.8
27.4
12.2
9.9
11.7
7.4
7.9
28.0
19.5
26.0
12.2
9.8
11.8
7.4
8.0
28.0
19.3
Revenue
1,004
1,550
Cost of Goods Sold
(794)
(1,135)
Gross Profit
210
414
Other Opng (Exp)/Inc
(83.8)
(208)
Operating Profit
127
206
Other Non Opg (Exp)/Inc
0.0
0.0
Associates & JV Inc
9.81
16.1
Net Interest (Exp)/Inc
(8.2)
(15.1)
Exceptional Gain/(Loss)
0.0
0.0
Pre128
207
Pre-tax Profit
Tax
(33.1)
(63.3)
Minority Interest
0.45
(0.1)
Preference Dividend
0.0
0.0
Net Profit
95.6
144
Net Profit before Except.
95.6
144
EBITDA
164
271
Growth
Revenue Gth (%)
0.0
54.3
EBITDA Gth (%)
0.0
65.0
Opg Profit Gth (%)
0.0
62.9
Net Profit Gth (Pre-ex) (%)
0.0
50.5
Margins & Ratio
Gross Margins (%)
21.0
26.7
Opg Profit Margin (%)
12.6
13.3
Net Profit Margin (%)
9.5
9.3
ROAE (%)
10.4
14.8
ROA (%)
6.7
9.4
ROCE (%)
7.3
10.5
Div Payout Ratio (%)
35.4
28.0
Net Interest Cover (x)
15.5
13.7
* Change of FYE from December to June (effectively 18 months)
Source: Company, AllianceDBS
ASIAN INSIGHTS
VICKERS SECURITIES
Page 29
Company Guide
Supermax Corp
Quarterly / Interim Income Statement (RMm)
1Q2016
2Q2016
FY Jun
1Q2016
2Q2016
Revenue
Cost of Goods Sold
Gross Profit
Other Oper. (Exp)/Inc
Operating Profit
Other Non Opg (Exp)/Inc
Associates & JV Inc
Net Interest (Exp)/Inc
Exceptional Gain/(Loss)
PrePre-tax Profit
Tax
Minority Interest
Net Profit
Net profit bef Except.
EBITDA
3Q2016
3Q2016
4Q2016
4Q2016
1Q2017
1Q2017
310
0.0
310
(262)
47.7
0.0
3.31
(2.7)
0.0
48.3
(10.0)
0.11
38.5
38.5
51.0
291
0.0
291
(247)
44.2
0.0
3.30
(1.2)
0.0
46.3
(8.0)
0.54
38.8
38.8
47.5
225
0.0
225
(190)
35.2
0.0
1.24
(3.0)
0.0
33.5
(13.2)
(0.6)
19.7
19.7
36.4
267
0.0
267
(231)
35.4
0.0
1.88
(2.5)
0.0
34.8
(27.9)
(0.1)
6.79
6.79
37.3
269
0.0
269
(243)
25.7
0.0
3.18
(2.4)
0.0
26.5
(6.7)
(0.3)
19.5
19.5
28.9
35.1
61.9
66.2
55.4
(6.2)
(7.0)
(7.5)
0.9
(22.6)
(23.2)
(20.3)
(49.3)
18.5
2.3
0.6
(65.5)
0.9
(22.6)
(27.4)
187.8
100.0
15.4
12.4
100.0
15.2
13.4
100.0
15.6
8.7
100.0
13.3
2.5
100.0
9.5
7.3
Balance Sheet (RMm)
FY Jun
2015A
2015A
2016A
2016A*
2017F
2017F
2018F
2018F
2019F
2019F
Net Fixed Assets
Invts in Associates & JVs
Other LT Assets
Cash & ST Invts
Inventory
Debtors
Other Current Assets
Total Assets
597
213
36.1
150
172
162
91.9
1,421
813
218
30.7
125
162
234
63.1
1,645
864
231
30.7
236
126
188
63.1
1,738
915
245
30.7
304
142
206
63.1
1,905
966
261
30.7
379
159
227
63.1
2,085
ST Debt
Creditor
Other Current Liab
LT Debt
Other LT Liabilities
Shareholder’s Equity
Minority Interests
Total Cap. & Liab.
201
110
19.6
137
33.5
922
(1.0)
1,421
257
176
25.8
128
39.7
1,019
(1.1)
1,645
257
138
25.8
178
39.7
1,101
(1.0)
1,738
257
154
25.8
228
39.7
1,201
(1.0)
1,905
257
173
25.8
278
39.7
1,312
(0.9)
2,085
214
(199)
61.8
68.6
62.9
0.7
1.5
1.0
0.2
0.2
23.0
3.6
231
(181)
52.5
56.4
51.7
0.8
1.6
1.2
0.2
0.2
20.6
3.5
250
(156)
52.5
56.1
51.5
0.8
1.8
1.3
0.1
0.1
18.7
3.5
Growth
Revenue Gth (%)
EBITDA Gth (%)
Opg Profit Gth (%)
Net Profit Gth (Pre-ex) (%)
Margins
Gross Margins (%)
Opg Profit Margins (%)
Net Profit Margins (%)
Non-Cash Wkg. Capital
297
256
Net Cash/(Debt)
(188)
(260)
Debtors Turn (avg days)
58.9
46.6
Creditors Turn (avg days)
52.4
48.1
Inventory Turn (avg days)
82.0
56.1
Asset Turnover (x)
0.7
1.0
Current Ratio (x)
1.7
1.3
Quick Ratio (x)
0.9
0.8
Net Debt/Equity (X)
0.2
0.3
Net Debt/Equity ex MI (X)
0.2
0.3
Capex to Debt (%)
41.3
50.4
Z-Score (X)
4.0
3.5
* Change of FYE from December to June (effectively 18 months)
Source: Company, AllianceDBS
ASIAN INSIGHTS
Page 30
VICKERS SECURITIES
Company Guide
Supermax Corp
Cash Flow Statement (RMm)
FY Jun
2015A
2015A
2016A
2016A*
2017F
2017F
2018F
2018F
2019F
2019F
Pre-Tax Profit
138
207
157
Dep. & Amort.
27.3
48.9
49.0
Tax Paid
(28.7)
(54.1)
(34.5)
Assoc. & JV Inc/(loss)
(13.3)
(16.1)
(12.9)
Chg in Wkg.Cap.
20.8
9.20
42.7
Other Operating CF
2.29
55.5
0.0
Net Operating CF
147
251
201
Capital Exp.(net)
(140)
(194)
(100.0)
Other Invts.(net)
0.0
0.0
0.0
Invts in Assoc. & JV
0.0
0.0
0.0
Div from Assoc & JV
0.0
0.0
0.0
Other Investing CF
(0.2)
0.0
0.0
Net Investing CF
(140)
(194)
(100.0)
Div Paid
(34.0)
(60.7)
(40.3)
Chg in Gross Debt
35.1
12.7
50.0
Capital Issues
(2.3)
(11.8)
0.0
Other Financing CF
(4.1)
(14.8)
0.0
Net Financing CF
(5.3)
(74.5)
9.72
Currency Adjustments
2.73
10.8
0.0
Chg in Cash
4.29
(7.0)
111
Opg CFPS (sen)
18.5
35.5
23.3
Free CFPS (sen)
1.04
8.35
14.9
* Change of FYE from December to June (effectively 18 months)
173
49.0
(38.1)
(14.2)
(17.3)
0.0
152
(100.0)
0.0
0.0
0.0
0.0
(100.0)
(34.2)
50.0
0.0
0.0
15.8
0.0
68.2
24.9
7.70
190
49.0
(41.9)
(15.7)
(19.1)
0.0
163
(100.0)
0.0
0.0
0.0
0.0
(100.0)
(37.7)
50.0
0.0
0.0
12.3
0.0
74.9
26.7
9.20
Source: Company, AllianceDBS
Target Price & Ratings History
3.52
RM
3.32
3.12
2
2.92
2.72
1
3
2.52
12- mt h
T arget Rat ing
Pric e
S.No.
Dat e of
Report
Closing
Pric e
1:
11 Feb 16
2.91
2.55
HOLD
2:
29 Feb 16
2.87
2.55
HOLD
3:
04 Mar 16
2.77
3.00
HOLD
4:
30 Aug 16
2.03
2.70
HOLD
5:
30 Nov 16
2.18
2.45
HOLD
6:
20 Dec 16
2.10
2.45
HOLD
7:
29 Dec 16
2.12
2.45
HOLD
2.32
6
4
2.12
1.92
Jan-16
5
May-16
7
Sep-16
Not e : Share price and Target price are adjusted for corporate actions.
Source: AllianceDBS
Analyst: Siti Ruzanna MOHD FARUK
ASIAN INSIGHTS
VICKERS SECURITIES
Page 31
Singapore Company Guide
Riverstone Holdings
Refer to important disclosures at the end of this report
Version 7 | Bloomberg: RSTON SP | Reuters: RVHL.SI
DBS Group Research . Equity
9 Jan 2017
HOLD
Shrouded by near-term challenges
Last Traded Price ( 6 Jan 2017)
STI : 2,962.63)
2017): S$0.87 (STI
Price Target 1212-mth:
mth: S$0.97 (12% upside) (Prev S$0.97)
Maintain HOLD with TP of $0.97; nearear-term prospects
prospects still
shrouded by persistent headwinds. With the reversal of
USD/MYR trends and heightened volatility in raw material prices,
the tailwinds of 2015 – which led to an exceptional year for
Riverstone (and the glove industry at large), now serve as
headwinds to the company’s near-term prospects.
Potential Catalyst: Capacity growth and earnings execution
Where we differ:
differ: We are below consensus for FY16F
Analyst
Paul YONG CFA +65 6682 3712 [email protected]
Singapore Research Team
Despite an improved performance in 3Q, near-term concerns
over ASPs and other persistent headwinds should continue to
weigh. This will likely be exacerbated by the recent spike in
Butadiene prices, which could potentially raise raw material
costs and mitigate contributions from the commissioning of
remaining lines in 4Q16. We now assume a slightly higher
healthcare glove mix ahead and lower our gross margin
assumptions by 1%/0.5% for FY16F/17F, which translates to a
6.1%/4.6% reduction in FY16F/17F earnings respectively.
[email protected]
Price Relative
S$
Relative Index
1.4
687
1.2
587
1.0
487
0.8
387
0.6
287
0.4
Capacity expansion to underpin longlong-term growth... Riverstone
plans to double its annual capacity from 4.2bn in 2014 to at
least 8.2bn gloves by 2018 to support growth in both its
cleanroom and healthcare glove segments.
187
0.2
Jan-13
Jan-14
Jan-15
Riverstone Holdings (LHS)
Forecasts and Valuation
FY Dec (RM m)
Revenue
EBITDA
Pre-tax Profit
Net Profit
Net Pft (Pre Ex.)
Net Pft Gth (Pre-ex) (%)
EPS (S cts)
EPS Pre Ex. (S cts)
EPS Gth Pre Ex (%)
Diluted EPS (S cts)
Net DPS (S cts)
BV Per Share (S cts)
PE (X)
PE Pre Ex. (X)
P/Cash Flow (X)
EV/EBITDA (X)
Net Div Yield (%)
P/Book Value (X)
Net Debt/Equity (X)
ROAE (%)
87
Jan-17
Jan-16
Relative STI (RHS)
2015A
2015A
560
169
144
127
127
78.4
5.48
5.48
78
5.48
2.08
20.9
15.8
15.8
16.3
11.0
2.4
4.1
CASH
29.7
Earnings Rev (%):
Consensus EPS (S
S cts):
cts :
Other Broker Recs:
2016F
2016F
647
169
133
117
117
(7.3)
5.09
5.09
(7)
5.09
1.92
24.0
17.0
17.0
17.3
11.1
2.2
3.6
CASH
22.7
2017F
2017F
717
194
150
132
132
12.1
5.70
5.70
12
5.70
2.16
27.6
15.2
15.2
13.0
9.6
2.5
3.1
CASH
22.1
2018F
2018F
774
212
162
142
142
7.7
6.14
6.14
8
6.14
2.32
31.4
14.1
14.1
11.0
8.6
2.7
2.8
CASH
20.8
0
5.08
B: 0
0
5.53
S: 0
0
6.18
H: 5
Source of all data on this page: Company, DBS Bank, Bloomberg
Finance L.P
ASIAN INSIGHTS
ed: TH / sa:YM, PY
Phase 3 expansion plans are on track, and the gradual
commissioning of new production lines from July 2016 onwards
should grow Riverstone’s annual production capacity by 19.2%
y-o-y to 6.2bn by end-FY16. With strong expected demand,
especially in the healthcare segment, earnings could nearly
double from RM71m in FY14 to RM142m by FY18F.
Separately, while some peers are scaling back on expansion
plans, we note that Riverstone’s additional capacity of 1bn p.a.
by end-2016 has already been fully committed – mainly from its
new markets of US and Japan. We thus believe that the
company could potentially accelerate expansion plans to
leverage on the strong demand.
Valuation:
Maintain HOLD with TP of S$0.97.
S$0.97. After rolling forward our
earnings base to FY17F post 3Q16 results, we arrived at a TP of
S$0.97 (based on 16x PE, or a c.20% discount to larger peers).
Key Risks to Our View:
Global economic slowdown. While margins for cleanroom
gloves tend to be resilient, demand for these gloves – which
made up about half of 3Q16 revenue – could be threatened in
the event of a slowdown in the global economy.
At A Glance
Issued Capital (m shrs)
741
Mkt. Cap (S$m/US$m)
641 / 445
Major Shareholders (%)
Ringlet Investment Limited
50.8
Wai Keong Lee
11.7
Free Float (%)
33.5
3m Avg. Daily Val (US$m)
0.12
ICB Industry : Health Care / Health Care Equipment & Services
VICKERS SECURITIES
Company Guide
Riverstone Holdings
Capital Expenditure (RM$m)
CRITICAL DATA POINTS TO WATCH
98.0
94.1
84.0
Earnings Drivers:
Growth in global demand for healthcare gloves, at least in near
to medium term. The Malaysian Rubber Glove Manufacturers
Association (MARGMA) estimates that demand for healthcare
gloves is likely to grow at 8-12% p.a. between 2014 and 2020.
As a relatively new entrant in the healthcare glove industry and
with ambitions to grow revenue from this segment quickly to
drive its earnings, we project a ramp-up in Riverstone’s
healthcare glove production at a 31.2% CAGR between FY14
and FY18F.
97
2017F
2018F
76
70.0
56.0
50
42.0
28.0
14.0
0.0
2014A
2015A
2016F
Production Capacity (m gloves)
7406
6340
6043.3
LongLong-term trends also indicate favourable demand prospects.
According to MARGMA, the global demand ratio of natural
rubber and synthetic (nitrile) rubber gloves shifted from 74:26 in
2009 to 53:47 in 2014. On the back of rising awareness of latex
allergies in emerging economies and the synthetic variety's low
cost, we expect the ratio to shift away from natural rubber
gloves in the long run. Riverstone could be a beneficiary of the
long-run substitution of rubber gloves by nitrile gloves as it is
principally engaged in the production of the latter.
97
5252
4532.5
3021.6
3942
2873
1510.8
0.0
2014A
2015A
2016F
2017F
2018F
Cleanroom Gloves (m gloves)
1296
1321.97
1173
Capacity expansion to underpin growth.
growth. To capitalise on the
favourable demand growth outlook in both the short and long
term, Riverstone will continue to expand its manufacturing
capacity to a minimum of 8.2bn gloves by 2018. We expect
new production capacities to propel top-line growth at a CAGR
of 18% between FY14 and FY18F, as they gradually come on
stream.
1057.58
793.18
2015A
2016F
528.79
264.39
0.00
2017F
2018F
Healthcare Gloves (m gloves)
6110
6171.0
5167
4936.8
4238
3702.6
2956
2468.4
Greater efficiency from higher automation and larger
larger scale
should help to maintain margins. As Riverstone scales up on its
production and further automation efforts, we expect net
margins to be maintained around 18% for FY16F-18F, which
should support stable growth in net profit from RM71m in FY14
to RM142m in FY18F.
1014
804
2014A
Beneficiary of strong US dollar vs Ringgit. Riverstone generates
a surplus in US dollars as it receives c.90% of its revenues in US
dollars, while c.35% of its costs are incurred in US dollars, and
will benefit from a strong US dollar versus the Ringgit. All else
being constant, strengthening of the US dollar by 1% could
boost net profit in Ringgit terms by c.1.2%.
985
2068
1234.2
0.0
2014A
2015A
2016F
2017F
2018F
92
92
92
2016F
2017F
2018F
Utilization Rate (%)
92.9
90
88.8
2014A
2015A
74.3
55.8
37.2
18.6
0.0
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 33
Company Guide
Riverstone Holdings
Balance Sheet:
Healthy balance sheet. Riverstone has been in a net cash
position over the observed period. Our projections show that
Riverstone should be able to internally fund capital expenditures
from 2016-2018.
Leverage & Asset Turnover (x)
0.05
1.1
0.05
0.04
1.1
0.04
0.03
0.03
1.0
0.02
Forecast net fixed asset growth at a CAGR of c.14.7% between
2014 and 2017. With capacity expected to nearly double in
2018 from 2014 levels, we project the group’s net fixed assets
to jump by >80% from RM228m in 2014 to RM417m in 2018.
Share Price Drivers:
Opportunities for inorganic growth. Due to the stringent
requirements for the establishment of cleanroom facilities,
Riverstone does not rule out the possibility of acquiring quality
cleanroom glove manufacturing companies in the future.
0.02
1.0
0.01
0.01
0.00
0.9
2014A
2015A
2016F
Gross Debt to Equity (LHS)
2017F
2018F
Asset Turnover (RHS)
Capital Expenditure
RMm
120.0
100.0
80.0
60.0
40.0
Cultivation of new markets for cleanroom products. As
cleanroom products are manufactured in controlled
environments and are subject to stringent requirements, they
are able to deliver much higher margins relative to healthcare
gloves. The ability to cultivate new markets for cleanroom
products, similar to what Riverstone recently achieved with its
diversification into the consumer electronics sector, should help
to boost earnings.
20.0
0.0
2014A
2015A
2016F
2017F
2018F
Capital Expenditure (-)
ROE (%)
25.0%
20.0%
Key Risks:
Global economic slowdown could impact cleanroom sales. A
slowdown in the general economy could lead to declines in
discretionary spending and manufacturing activity in the HDD
industry. Although Riverstone has been gradually reducing its
exposure to HDDs, down from historical highs of up to 70%,
they still make up c.50% of the company's cleanroom portfolio
today.
Intensifying competition
competition could erode profitability. While we
believe that oversupply over the next few years is unlikely, the
influx of healthcare gloves beyond 2017 could threaten
Riverstone’s market share and pricing power if it fails to
advance on the technological front.
Company Background
Riverstone Holdings (RSTON SP) is a natural rubber and nitrile
(synthetic rubber) glove manufacturer specialising in cleanroom
and healthcare gloves. It is also engaged in the manufacture
and distribution of other ancillary products such as finger cots,
packaging bags and face masks.
15.0%
10.0%
5.0%
0.0%
2014A
2015A
2016F
2017F
2018F
Forward PE Band (x)
(x)
22.7
+2sd: 20.9x
17.7
+1sd: 16.4x
12.7
Avg: 12x
7.7
-1sd: 7.5x
2.7
Jan-13
-2sd: 3.1x
Jan-14
Jan-15
Jan-16
PB Band (x)
(x)
6.7
5.7
+2sd: 5.27x
4.7
+1sd: 4.15x
3.7
Avg: 3.03x
2.7
-1sd: 1.92x
1.7
0.7
Jan-13
-2sd: 0.8x
Jan-14
Jan-15
Jan-16
Source: Company, DBS Bank
ASIAN INSIGHTS
Page 34
VICKERS SECURITIES
Company Guide
Riverstone Holdings
Key Assumptions
FY Dec
2014A
2014A
2015A
2015A
2016F
2016F
2017F
2017F
2018F
2018F
Capital Expenditure
(RM$m)
Production Capacity (m
gloves)
Cleanroom Gloves (m
gloves)
Healthcare Gloves (m
gloves)
Utilization Rate (%)
94.1
2,873
804
2,068
90.0
50.0
3,942
985
2,956
88.8
76.0
5,252
1,014
4,238
92.0
97.0
6,340
1,173
5,167
92.0
97.0
7,406
1,296
6,110
92.0
Segmental Breakdown
FY Dec
2014A
2014A
2015A
2015A
2016F
2016F
2017F
2017F
2018F
2018F
198
191
10.3
399
274
274
11.3
560
281
355
11.9
647
315
389
12.5
717
338
423
13.1
774
Revenues (RMm)
Cleanroom Gloves
HealthcareGloves
Other Cleanroom
Products
Total
Gross Profit (RMm)
Cleanroom Gloves
HealthcareGloves
Other Cleanroom
Products
Total
Gross Profit Margins (%)
Cleanroom Gloves
HealthcareGloves
Other Cleanroom
Products
Total
75.4
33.4
0.12
109
106
69.1
0.13
175
105
63.8
0.14
169
120
70.0
0.14
190
128
76.2
0.15
205
38.0
17.5
1.1
27.3
38.5
25.2
1.1
31.2
37.5
18.0
1.1
26.1
38.0
18.0
1.1
26.5
38.0
18.0
1.1
26.4
Income Statement (RMm)
FY Dec
2014A
2014A
2015A
2015A
2016F
2016F
2017F
2017F
2018F
2018F
399
(290)
109
(27.8)
81.1
0.0
0.0
0.0
0.0
81.1
(10.2)
0.0
0.0
71.0
71.0
100
560
(385)
175
(30.5)
144
0.0
0.0
0.0
0.0
144
(17.8)
0.0
0.0
127
127
169
647
(478)
169
(35.8)
133
0.0
0.0
0.0
0.0
133
(16.0)
0.0
0.0
117
117
169
717
(527)
190
(39.5)
150
0.0
0.0
0.0
0.0
150
(18.8)
0.0
0.0
132
132
194
774
(569)
205
(42.7)
162
0.0
0.0
0.0
0.0
162
(20.2)
0.0
0.0
142
142
212
11.6
9.7
11.7
22.4
40.3
68.4
78.0
78.4
15.5
0.1
(7.6)
(7.3)
10.7
14.3
12.8
12.1
8.0
9.7
7.7
7.7
27.3
20.3
17.8
20.4
17.3
19.7
36.1
NM
31.2
25.8
22.6
29.7
24.7
28.8
37.8
NM
26.1
20.6
18.1
22.7
19.4
22.2
37.8
NM
26.5
21.0
18.4
22.1
19.7
21.7
37.8
NM
26.4
20.9
18.3
20.8
18.7
20.5
37.8
NM
Revenue
Cost of Goods Sold
Gross Profit
Other Opng (Exp)/Inc
Operating Profit
Other Non Opg (Exp)/Inc
Associates & JV Inc
Net Interest (Exp)/Inc
Exceptional Gain/(Loss)
PrePre-tax Profit
Tax
Minority Interest
Preference Dividend
Net Profit
Net Profit before Except.
EBITDA
Growth
Revenue Gth (%)
EBITDA Gth (%)
Opg Profit Gth (%)
Net Profit Gth (Pre-ex) (%)
Margins & Ratio
Gross Margins (%)
Opg Profit Margin (%)
Net Profit Margin (%)
ROAE (%)
ROA (%)
ROCE (%)
Div Payout Ratio (%)
Net Interest Cover (x)
Cleanroom gloves tend
to enjoy higher, more
resilient margins as
compared to healthcare
gloves.
Source: Company, DBS Bank
ASIAN INSIGHTS
VICKERS SECURITIES
Page 35
Company Guide
Riverstone Holdings
Quarterly / Interim Income Statement (RMm)
3Q2015
4Q2015
FY Dec
3Q2015
4Q2015
Revenue
Cost of Goods Sold
Gross Profit
Other Oper. (Exp)/Inc
Operating Profit
Other Non Opg (Exp)/Inc
Associates & JV Inc
Net Interest (Exp)/Inc
Exceptional Gain/(Loss)
PrePre-tax Profit
Tax
Minority Interest
Net Profit
Net profit bef Except.
EBITDA
Growth
Revenue Gth (%)
EBITDA Gth (%)
Opg Profit Gth (%)
Net Profit Gth (Pre-ex) (%)
Margins
Gross Margins (%)
Opg Profit Margins (%)
Net Profit Margins (%)
151
(103)
48.0
(7.9)
40.1
0.0
0.0
0.0
0.0
40.1
(4.8)
0.0
35.3
35.3
47.1
153
(105)
48.0
(8.7)
39.2
0.0
0.0
0.0
0.0
39.2
(2.0)
0.0
37.2
37.2
46.8
1Q2016
1Q2016
2Q2016
2Q2016
3Q2016
3Q2016
148
(105)
43.1
(11.4)
31.7
0.0
0.0
0.0
0.0
31.7
(4.5)
0.0
27.2
27.2
39.7
157
(118)
38.2
(6.6)
31.7
0.0
0.0
0.0
0.0
31.7
(4.3)
0.0
27.3
27.3
39.7
167
(123)
43.6
(9.5)
34.1
0.0
0.0
0.0
0.0
34.1
(4.2)
0.0
29.8
29.8
41.6
16.8
21.8
24.6
30.9
1.9
(0.7)
(2.2)
5.4
(3.5)
(15.0)
(19.2)
(27.0)
5.8
(0.1)
(0.1)
0.5
6.5
4.8
7.6
9.2
31.9
26.6
23.5
31.3
25.6
24.3
29.1
21.4
18.3
24.4
20.2
17.4
26.1
20.4
17.9
Balance Sheet (RMm)
FY Dec
2014A
2014A
2015A
2015A
2016F
2016F
2017F
2017F
2018F
2018F
Net Fixed Assets
Invts in Associates & JVs
Other LT Assets
Cash & ST Invts
Inventory
Debtors
Other Current Assets
Total Assets
228
0.0
3.11
79.4
42.1
86.7
1.81
441
277
0.0
9.61
129
61.2
103
6.06
585
317
0.0
9.61
123
46.0
124
6.06
626
371
0.0
9.61
130
53.0
143
6.06
713
417
0.0
9.61
160
56.9
155
6.06
805
ST Debt
Creditor
Other Current Liab
LT Debt
Other LT Liabilities
Shareholder’s Equity
Minority Interests
Total Cap. & Liab.
0.0
50.4
5.68
0.0
13.1
372
0.0
441
0.0
84.4
7.65
0.0
11.7
482
0.0
585
0.0
52.1
7.65
0.0
11.7
554
0.0
626
0.0
57.0
7.65
0.0
11.7
636
0.0
713
0.0
61.1
7.65
0.0
11.7
724
0.0
805
74.5
79.4
68.2
60.4
52.4
1.0
3.7
3.0
CASH
CASH
N/A
20.7
78.2
129
61.8
68.3
52.3
1.1
3.2
2.5
CASH
CASH
N/A
15.0
116
123
64.1
56.4
44.3
1.1
5.0
4.1
CASH
CASH
N/A
20.6
138
130
68.1
41.2
37.4
1.1
5.1
4.2
CASH
CASH
N/A
19.5
149
160
70.3
41.5
38.6
1.0
5.5
4.6
CASH
CASH
N/A
18.6
Non-Cash Wkg. Capital
Net Cash/(Debt)
Debtors Turn (avg days)
Creditors Turn (avg days)
Inventory Turn (avg days)
Asset Turnover (x)
Current Ratio (x)
Quick Ratio (x)
Net Debt/Equity (X)
Net Debt/Equity ex MI (X)
Capex to Debt (%)
Z-Score (X)
Tax claims (capital
allowances, etc) are typically
made progressively, but
finalised in 4Q when the
company has better visibility
of earnings.
Source: Company, DBS Bank
ASIAN INSIGHTS
Page 36
VICKERS SECURITIES
Company Guide
Riverstone Holdings
Cash Flow Statement (RMm)
FY Dec
Pre-Tax Profit
Dep. & Amort.
Tax Paid
Assoc. & JV Inc/(loss)
Chg in Wkg.Cap.
Other Operating CF
Net Operating CF
Capital Exp.(net)
Other Invts.(net)
Invts in Assoc. & JV
Div from Assoc & JV
Other Investing CF
Net Investing CF
Div Paid
Chg in Gross Debt
Capital Issues
Other Financing CF
Net Financing CF
Currency Adjustments
Chg in Cash
Opg CFPS (S cts)
Free CFPS (S cts)
2014A
2014A
2015A
2015A
2016F
2016F
2017F
2017F
2018F
2018F
81.1
19.4
(14.8)
0.0
(25.2)
2.32
62.8
(75.4)
0.0
0.0
0.0
0.0
(75.4)
(25.4)
0.0
0.0
1.00
(24.4)
2.38
(34.6)
3.81
(0.5)
144
24.8
(18.5)
0.0
(26.3)
(2.3)
122
(54.2)
0.0
0.0
0.0
0.0
(54.2)
(25.8)
0.0
0.0
0.0
(25.8)
7.07
49.3
6.43
2.94
133
35.9
(16.0)
0.0
(38.2)
0.0
115
(76.0)
0.0
0.0
0.0
0.0
(76.0)
(44.4)
0.0
0.0
0.0
(44.4)
0.0
(5.3)
6.64
1.69
150
43.2
(18.8)
0.0
(21.3)
0.0
153
(97.0)
0.0
0.0
0.0
0.0
(97.0)
(49.8)
0.0
0.0
0.0
(49.8)
0.0
6.68
7.57
2.45
162
50.4
(20.2)
0.0
(11.2)
0.0
181
(97.0)
0.0
0.0
0.0
0.0
(97.0)
(53.6)
0.0
0.0
0.0
(53.6)
0.0
30.3
8.33
3.64
We expect future
dividends to remain
close to current levels,
or payout ratio of
c.38%.
Source: Company, DBS Bank
Target Price & Ratings History
1.28
S$
1.23
Closing
Pric e
1:
25 Feb 16
1.00
1.30
BUY
2:
09 May 16
0.89
1.00
HOLD
1.18
1.13
1.08
1.03
0.98
0.93
1
3:
04 J ul 16
0.91
1.00
HOLD
4:
12 Aug 16
0.88
0.96
HOLD
5:
11 Oct 16
0.91
0.96
HOLD
6:
10 Nov 16
0.90
0.97
HOLD
6
2
0.88
12- mt h
T arget Rat ing
Pric e
Dat e of
Report
S.No.
4
5
3
0.83
0.78
Jan-16
May-16
Sep-16
Not e : Share price and Target price are adjusted for corporate actions.
Source: DBS Bank
Analyst: Paul YONG CFA
Singapore Research Team
ASIAN INSIGHTS
VICKERS SECURITIES
Page 37
Industry Focus
Glove Manufacturers
AllianceDBS recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
Completed Date: 7 Jan 2017 08:29:19 (MYT)
Dissemination Date: 9 Jan 2017 08:26:38 (MYT)
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by AllianceDBS Research Sdn Bhd.
Bhd. This report is solely intended for the clients of DBS Bank Ltd, DBS Vickers Securities
(Singapore) Pte Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied,
photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of AllianceDBS Research Sdn Bhd.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,
the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to
change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard
to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of
addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal
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profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This
document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or
persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have
positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and
other banking services for these companies.
Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can
be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.
The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it
may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no
obligation to update the information in this report.
This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
schedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on
which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual
results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED
UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a)
(b)
such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the
commodity referred to in this report.
DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research
department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction
in the past twelve months and does not engage in market-making.
Page 38
Industry Focus
Glove Manufacturers
ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in the report. The DBS Group has
procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of
research reports. As of 9 Jan 2017, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold
interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). The research analyst(s)
responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and
procedures are in place to ensure that confidential information held by either the research or investment banking function is handled
appropriately.
COMPANYCOMPANY-SPECIFIC / REGULATORY DISCLOSURES
1. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates do not have a proprietary
position in the securities recommended in this report as of 30 Nov 2016.
Compensation for
for investment banking services:
2.
DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a
manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further
information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document
should contact DBSVUSA exclusively.
Disclosure of previous investment recommendation produced:
3.
DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other
investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12
months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by
DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.
RESTRICTIONS ON DISTRIBUTION
General
This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or
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contrary to law or regulation.
Australia
This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”),
both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act
2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary
Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended
only for “wholesale investors” within the meaning of the CA.
Hong Kong
This report is being distributed in Hong Kong by or on behalf of, and is attributable to DBS Vickers (Hong Kong) Limited
which is licensed and regulated by the Hong Kong Securities and Futures Commission and/or by DBS Bank (Hong Kong)
Limited which is regulated by the Hong Kong Monetary Authority and the Securities and Futures Commission. Where this
publication relates to a research report, unless otherwise stated in the research report(s), DBS Bank (Hong Kong) Limited is not
the issuer of the research report(s). This publication including any research report(s) is/are distributed on the express
understanding that, whilst the information contained within is believed to be reliable, the information has not been
independently verified by DBS Bank (Hong Kong) Limited. This report is intended for distribution in Hong Kong only to
professional investors (as defined in the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) and any
rules promulgated thereunder.)
For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at [email protected].
Indonesia
This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.
Malaysia
This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from
ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this
report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that
ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and
associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of
them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to
perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have
received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other
services from the subject companies.
Wong Ming Tek, Executive Director, ADBSR
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Industry Focus
Glove Manufacturers
Singapore
This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No.
198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the
Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign
entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial
Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert
Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons
only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from,
or in connection with the report.
Thailand
This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only
intended for institutional clients only and no other person may act upon it.
United Kingdom
This report is produced by AllianceDBS Research Sdn Bhd which is regulated by the Securities Commission Malaysia.
This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and
regulated by the Financial Conduct Authority in the United Kingdom.
In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and
associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any
form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at
persons having professional experience in matters relating to investments. Any investment activity following from this
communication will only be engaged in with such persons. Persons who do not have professional experience in matters
relating to investments should not rely on this communication.
Dubai
This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch)
having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC),
Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This
research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon
it.
United States
This report was prepared by AllianceDBS Research Sdn Bhd. DBSVUSA did not participate in its preparation. The research
analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of
DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications
with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed
in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major
U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as
DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to
herein should contact DBSVUSA directly and not its affiliate.
Other jurisdictions
In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified,
professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.
AllianceDBS Research Sdn Bhd
(128540 U)
19th Floor, Menara Multi-Purpose, Capital Square,
8 Jalan Munshi Abdullah 50100
Kuala Lumpur, Malaysia.
Tel.: +603 2604 3333 Fax: +603 2604 3921 email : [email protected]
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