BUY

 

Closing Price

 

SGD 0.66

 

12-month Target Price

 

SGD 0.95 (+44%)

 

· Strong demand from semiconductor and healthcare customers drive revenue to record quarterly high. Outlooks for these industries remain optimistic.

 

· Revenue doubled to Rm 52.8 million, while earnings jumped to 3.39 sen (1.45 cent), from 0.58 sen. (0.24 cent).

 

· Net asset value is 58 sen, from 55.4 sen in 2009 and firm maintains net cash position of Rm 51 million.

 

· We maintain our BUY rating on the counter and we increase the target price to S$0.95

 

Stellar first quarter results

 

Riverstone’s fortunes experienced a positive turn as reflected by its remarkable first quarter results. The spectacular headline figures were also in part, due to 1Q09 being its worst performing quarter since its IPO listing. Revenue has also exceeded our estimates as the firm is supposed to be operating at full capacity since the previous quarter.

 

Positive out look on the industry

 

According to the World Semiconductor Trade Statistics, the industry outlook is positive with growth estimates of 8.2% to 9.5% in Asia Pacific. The firm not only has expanded businesses in the semiconductor and healthcare segment through acquiring more clients, it also has a wider geographical outreach as it gains customers from Korea, Japan, Taiwan and US.

 

Valuation and Recommendation

 

We have not changed our valuation method and continue to price it based on 15X FY10 EPS. As we priced in new developments and reviewed our conservative estimates for the counter, we find the need to upgrade the share price.

 

Four key reasons why the company warrants a higher target price.

 

§          Riverstone increased selling price by 5% to 10% on the back of rising raw material cost but by being able to maintain gross profit margins, the price increments will contribute to bottom line, by boosting the earnings per share.

 

§          We increase the utilization rate for the firm’s existing production capacity and forecast full utilization rate for additional capacity coming on board in 2010.

 

§          We include the production capacity contributed through tie ups with a third party

 

§          We revise our conservative estimates to reflect a more bullish view.

 

We are maintaining our Buy rating but upgrading our fair value estimate to S$0.95 from S$0.73, representing a potential upside of 44% from the closing price.

 

Source: Company, Phillip Securities Research,

 

*exchange rate of SGD$0.4285/MYR