A presentation on the stock valuation of Riverstone Holdings Limited - listed on Singapore Stock Exchange

1. G 4

2. CONTENT
INDUSTRIAL OUTLOOK
SWOT ANALYSIS
FINANCIAL ANALYSIS
RISK ANALYSIS & WACC
VALUATION

3. Background & Historical Analysis
Environment
Political and Legal
Economic Factors
Technology
Competitors
INDUSTRIAL OUTLOOK

4. INDUSTRIAL OUTLOOK
Background & Historical Analysis
Environment
Political and Legal
Economic Factors
Technology
Competitors

5. Background
 Established: 1989
 85% export to Americas , Asia and Europe
 Production plants in Malaysia , Thailand and China
 Main Product:
 Clean Room and Health care gloves
 Finger cots , face masks and packaging bags

7. Historical Analysis
Riverstone share price (Jan 2009 – Dec 2013)
1
2
4
5
3
1. Global economy faced recession
2. Good company performance
3. Stock markets fall
4. Higher sales of healthcare gloves
5. Production capacity expanding

8. INDUSTRIAL OUTLOOK
Background & Historical Analysis
Environment
Political and Legal
Economic Factors
Technology
Competitors

9. Environment
Rubber Product (in Thousand tones) 2008 2009 2010 2011 2012 2013
Other Gloves 5,991.92 6,279.86 7,930.10 8,817.02 9,489.20 9,363.22
Surgical Gloves 916.34 866.21 985.38 1,074.51 1,070.63 1,170.30
0.00
1,000.00
2,000.00
3,000.00
4,000.00
5,000.00
6,000.00
7,000.00
8,000.00
9,000.00
10,000.00
2008 2009 2010 2011 2012 2013
Other Gloves
Gloves

10. INDUSTRIAL OUTLOOK
Background & Historical Analysis
Environment
Political and Legal
Economic Factors
Technology
Competitors

11. INDUSTRIAL OUTLOOK
Background & Historical Analysis
Environment
Political and Legal
Economic Factors
Technology
Competitors

12. INDUSTRIAL OUTLOOK
Background & Historical Analysis
Environment
Political and Legal
Economic Factors
Technology
Competitors

13. INDUSTRIAL OUTLOOK
Background & Historical Analysis
Environment
Political and Legal
Economic Factors
Technology
Competitors

14. Competitors
•Mainly medical gloves
Supermax Corporation Berhad (1987)
•Mainly Latex gloves and technical rubber
products
Kossan Rubber Industries Bhd (1979)

15. SWOT ANALYSIS
Strengths Weakness
Opportunities Threats

16. SWOT ANALYSIS
Strengths
• Established and reputable brand
• Ability and willingness to meet customers'
needs
• Strong financial position and no long term
debt
• Niche business provides a wide moat
• Enlarging capacity provides growth
opportunities and economies of scale
• Sound management
Weakness
Opportunities Threats

17. SWOT ANALYSIS
Strengths
Weaknesses
• Expansion in healthcare gloves capacity
may exert pricing pressure
• Inability to pass on full impact of any cost
increase
Opportunities Threats

18. SWOT ANALYSIS
Strengths Weaknesses
Opportunities
• Demand for cleanroom gloves to stay
healthy
• Demand for healthcare gloves to grow
by European
• Tablet and mobile device manufacturing
• Customized medical gloves to provide
growth driver
Threats

19. SWOT ANALYSIS
Strengths Weaknesses
Opportunities
Threats
• Upstream price fluctuations may lead to
higher costs
• Exposure to forex volatility
• Slowdown in economy and
semiconductor related manufacturing
• Higher raw material costs
• Foreign exchange risk

20. Profitability Analysis
Turnover Ratio
Liquidity Analysis
Solvency Analysis
FINANCIAL ANALYSIS

21. Profitability Analysis
0
10
20
30
40
50
Dec-31-2009 Dec-31-2010 Dec-31-2011 Dec-31-2012 Dec-31-2013
Gross Profit Margin
Riverstone Kossan Supermax
0
5
10
15
20
25
30
Dec-31-2009 Dec-31-2010 Dec-31-2011 Dec-31-2012 Dec-31-2013
ROE
Riverstone Kossan Supermax
0
5
10
15
Dec-31-2009 Dec-31-2010 Dec-31-2011 Dec-31-2012 Dec-31-2013
ROA
Riverstone Kossan Supermax

22. Profitability Analysis
Turnover Ratio
Liquidity Analysis
Solvency Analysis
FINANCIAL ANALYSIS

23. Turnover Ratio
0
50
100
150
Dec-31-2009 Dec-31-2010 Dec-31-2011 Dec-31-2012 Dec-31-2013
Inventory Conversion Period
Riverstone Kossan Supermax
0
20
40
60
80
100
Dec-31-2009 Dec-31-2010 Dec-31-2011 Dec-31-2012 Dec-31-2013
Receivable Conversion Period
Riverstone Kossan Supermax
0
20
40
60
Dec-31-2009 Dec-31-2010 Dec-31-2011 Dec-31-2012 Dec-31-2013
Payable Conversion Period
Riverstone Kossan Supermax
0
50
100
150
200
Dec-31-2009 Dec-31-2010 Dec-31-2011 Dec-31-2012 Dec-31-2013
Cash Conversion Cycle
Riverstone Kossan Supermax

24. Profitability Analysis
Turnover Ratio
Liquidity Analysis
Solvency Analysis
FINANCIAL ANALYSIS

25. Liquidity Analysis
0
1
2
3
4
5
6
Dec-31-2009 Dec-31-2010 Dec-31-2011 Dec-31-2-12 Dec-31-2013
Current Ratio
Riverstone Kossan Supermax
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
Dec-31-2009 Dec-31-2010 Dec-31-2011 Dec-31-2012 Dec-31-2013
Quick Ratio
Riverstone Kossan Supermax

26. Profitability Analysis
Turnover Ratio
Liquidity Analysis
Solvency Analysis
FINANCIAL ANALYSIS

27. Solvency Analysis
0
5
10
15
20
25
30
35
Dec-31-2009 Dec-31-2010 Dec-31-2011 Dec-31-2-12 Dec-31-2013
Long-term D/E
Riverstone Kossan Supermax
0
10
20
30
40
50
60
70
Dec-31-2009 Dec-31-2-10 Dec-31-2011 Dec-31-2012 Dec-31-2013
Total D/E
Riverstone Kossan Supermax

28. Risk Analysis
Riverstone Supermax Kossan
Beta 0.1854 0.2776 0.1232
Average return (%) 0.2225 0.6943 0.3764
Standard deviation 0.0330 0.0669 0.0597
Riverstone is an attractive investment for risk adverse investors.

29.  Risk free rate: 2.46% (Singapore Government 10-year bond yield)
 Market Return: 13.56% (By analyzing the MSCI world Index past return)
 Return of equity=2.46+0.1854*(13.56-2.46)=4.5179%
 No debt
 WACC=Return of equity
WACC

30. VALUATION
Dividend
Discount
Model
P/E Ratio
Model
Free Cash
Flows to Firm
(FCFF) method

31. Dividend Discount Model
INCONCLUSIVE
Expected return(r)=rf+b(rm-rf)=4.5179% < g
V=D0*(1+g)/(r-g)
rf=2.46%; rm=13.56%; g= 6.43%; Beta= 0.1854;
D0= 0.068; 1MYR = S$0.3899

32. Why failed?
Growth rate (%) 2009 2010 2011 2012 2013
Total revenue 10.2% 42.3% 23.1% 13.6% 15.5%
Gross profit 31.5% 29.0% 22.6% 23.1% 27.3%
Net income 19.0% 18.2% 14.2% 12.8% 16.2%
DDM is limited to firms that are growing at a stable rate.

33. P/E Ratio Model
Share price (SGD) * Exchange Rate = 0.89
Share price (MYR) ) = P/E * EPS = 2.29
P/E =13.17 ; Earning per share =0.17,1MYR = S$0.3899

34. Why failed?
10
11
12
13
14
15
16
P/E Ratio
P/E ratio model is suitable for mature companies with stable earnings multiple .

35. 4 Assumptions:
 Sales to grow for the next 5 years at 23.13%
 Operating expense/income - Used historical average of
percentages of sales
 Capital expenditure to grow at 17% p.a.
 Tax rate of 20% of EBT for the next 5 years
FCFF method

36. FCFF method
2014 2015 2016 2017 2018
Currency (in millions) MYR MYR MYR MYR MYR
Free cash flow to firm (FCFF) 4.89 25.85 34.99 46.75 61.86
Discount factor (at 4.5179% WACC) 1.0452 1.0924 1.1418 1.1934 1.2473
Present value (PV) of FCFF 4.68 23.66 30.64 39.17 49.60
Total PV of five year FCFF 147.75
Terminal value 3,079.92
PV of terminal value 2,469.27
PV of total FCFF* (in millions MYR) 2,617.02
Total PV on 8 August 2014 (MYR) 2,687,653,401.53
Number of shares 371,226,025.00
Share Price (MYR) 7.24
Share Price (in SGD)** 2.82

37. CONCLUSION

38. THANK YOU

39. Q & A