Riverstone Holdings Limited - Stock Valuation
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Transcript of Riverstone Holdings Limited - Stock Valuation
STOCK VALUATION LI YIYUN; SU CHANG; ZHENG YAYUAN
NATASHA SINGHAL; LONG HONGZHANG
G 4
G 4
CONTENT
INDUSTRIAL OUTLOOK
SWOT ANALYSIS
FINANCIAL ANALYSIS
RISK ANALYSIS & WACC
VALUATION
Background & Historical Analysis
Environment
Political and Legal
Economic Factors
Technology
Competitors
INDUSTRIAL OUTLOOK
INDUSTRIAL OUTLOOK
Background & Historical Analysis
Environment
Political and Legal
Economic Factors
Technology
Competitors
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
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
INDUSTRIAL OUTLOOK
Background & Historical AnalysisEnvironment
Political and Legal
Economic Factors
Technology
Competitors
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
2008 2009 2010 2011 2012 20130.00
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
Other GlovesGloves
INDUSTRIAL OUTLOOK
Background & Historical Analysis
Environment
Political and Legal
Economic Factors
Technology
Competitors
INDUSTRIAL OUTLOOK
Background & Historical Analysis
Environment
Political and Legal
Economic Factors
Technology
Competitors
INDUSTRIAL OUTLOOK
Background & Historical Analysis
Environment
Political and Legal
Economic Factors
Technology
Competitors
INDUSTRIAL OUTLOOK
Background & Historical Analysis
Environment
Political and Legal
Economic Factors
Technology
Competitors
Competitors
• Mainly medical gloves
Supermax Corporation Berhad (1987)
• Mainly Latex gloves and technical rubber products
Kossan Rubber Industries Bhd (1979)
SWOT ANALYSIS
Strengths
Weakness
Opportunities Threats
SWOT ANALYSISStrengths• 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
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
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
SWOT ANALYSIS
StrengthsWeaknesse
s
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
Profitability Analysis
Turnover Ratio
Liquidity Analysis
Solvency Analysis
FINANCIAL ANALYSIS
Profitability Analysis
Dec-31-2009
Dec-31-2010
Dec-31-2011
Dec-31-2012
Dec-31-2013
0
10
20
30
40
50
Gross Profit Margin
Riverstone Kossan Supermax
Dec-31-2009
Dec-31-2010
Dec-31-2011
Dec-31-2012
Dec-31-2013
0
5
10
15
20
25
30
ROE
Riverstone Kossan Supermax
Dec-31-2009
Dec-31-2010
Dec-31-2011
Dec-31-2012
Dec-31-2013
02468
101214
ROA
Riverstone Kossan Supermax
Profitability Analysis
Turnover Ratio
Liquidity Analysis
Solvency Analysis
FINANCIAL ANALYSIS
Turnover Ratio
Dec-31-2009
Dec-31-2010
Dec-31-2011
Dec-31-2012
Dec-31-2013
020406080
100120140
Inventory Conversion Period
Riverstone Kossan Supermax
Dec-31-2009
Dec-31-2010
Dec-31-2011
Dec-31-2012
Dec-31-2013
0
20
40
60
80
100
Receivable Conversion Period
Riverstone Kossan Supermax
Dec-31-2009
Dec-31-2010
Dec-31-2011
Dec-31-2012
Dec-31-2013
0102030405060
Payable Conversion Period
Riverstone Kossan Supermax
Dec-31-2009
Dec-31-2010
Dec-31-2011
Dec-31-2012
Dec-31-2013
0
50
100
150
200
Cash Conversion Cycle
Riverstone Kossan Supermax
Profitability Analysis
Turnover Ratio
Liquidity Analysis
Solvency Analysis
FINANCIAL ANALYSIS
Liquidity Analysis
Dec-31-2009
Dec-31-2010
Dec-31-2011
Dec-31-2-12
Dec-31-2013
0
1
2
3
4
5
6
Current Ratio
Riverstone Kossan Supermax
Dec-31-2009
Dec-31-2010
Dec-31-2011
Dec-31-2012
Dec-31-2013
00.5
11.5
22.5
33.5
44.5
5
Quick Ratio
Riverstone Kossan Supermax
Profitability Analysis
Turnover Ratio
Liquidity Analysis
Solvency Analysis
FINANCIAL ANALYSIS
Solvency Analysis
Dec-31-2009
Dec-31-2010
Dec-31-2011
Dec-31-2-12 Dec-31-2013
0
5
10
15
20
25
30
35
Long-term D/E
Riverstone Kossan Supermax
Dec-31-2009
Dec-31-2-10
Dec-31-2011
Dec-31-2012
Dec-31-2013
0
10
20
30
40
50
60
70
Total D/E
Riverstone Kossan Supermax
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.
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
VALUATION
Dividend
Discount
Model
P/E Ratio Model
Free Cash Flows
to Firm (FCFF) metho
d
Dividend Discount Model
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.
P/E Ratio Model
Why failed?
Aug-
12-2
013
Aug-
25-2
013
Sep-
07-2
013
Sep-
20-2
013
Oct-0
3-20
13
Oct-1
6-20
13
Oct-2
9-20
13
Nov-1
1-20
13
Nov-2
4-20
13
Dec-0
7-20
13
Dec-2
0-20
13
Jan-
02-2
014
Jan-
15-2
014
Jan-
28-2
014
Feb-
10-2
014
Feb-
23-2
014
Mar
-08-
2014
Mar
-21-
2014
Apr-0
3-20
14
Apr-1
6-20
14
Apr-2
9-20
14
May
-12-
2014
May
-25-
2014
Jun-
07-2
014
Jun-
20-2
014
Jul-0
3-20
14
Jul-1
6-20
14
Jul-2
9-20
14
Aug-
11-2
014
10
11
12
13
14
15
16
P/E Ratio
P/E ratio model is suitable for mature companies with stable earnings multiple .
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
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
CONCLUSION
THANK YOU
Q & A