RIVERSTONE $SGX-AP4 - Commendable Q3 2021 Result. Shows Resiliency. Briefing takeaways.

**1) Business, finance, ASP.**
a) In Q3 Clean room v medical gloves:
Profit contribution 30% v 70% ; Volume contribution 20% v 80%; Asp $120 v $69 average; GPM 58% and 54% in Q3
b). Production volume - q3 achieved total 1.95b of gloves... down from 2.5b a year ago. Breakdown: 350m clean room 1.6b healthcare gloves.
c) ASP has been reducing every month. Dec avg 33-35 usd. More room to adjust downward slightly cos raw mat continue to drop.
d) Gross Profit margin will normalise to about 20-25% sustainable level for Riverstone. At this margin, other producers can only breakeven or even loss making. This is higher than precovid margin of about 15%.


**2) CLEANROOM Gloves**
a) Clean room consistent. Order remains strong. Riverstone Can’t fulfill customer orders at the moment cos they have backlog of order from Q3. In Q3, the company faced MCO challenges and workforce was limited to 60%, they also had to close down plant for 10 days.
b) Additionally, in Q4, they're facing labor shortage issue. Overall, aiming for 400m deliveries in Q4.
c) Cleanroom barrier to entry is high. It will take 12-15 months to build facility (with dipping line). Not easy to convert dipping line from medical to cleanroom cos there's risk of cross contamination as chemical used varies. Competitive advantage is there, especially from formulation. Customer approval will take about 1 year.
d) Target is still 500m deliveries per quarter
e) Margin may not be as high as Q3 going forward, but margin reduction will not be like healthcare glove. It should sustain above precovid margin of 40%.

** 3) HEALTHCARE GLOVES**
a) Healthcare glove order had been slow from aug onwards but RIVERSTONE is seeing good signs going fwd - a lot of customer resume order in dec.
b) Customer in Q3 was having wait and see approach. but this behaviour can change v fast. Past 2 weeks, things seem to resume and back to normal.

**4) Utilisation**
a) Aug to Nov was slow and at 70-75%. Seeing Improvement in dec. Q4 utilisation average is at 75%
b) OVerall utilisation should be at 90% in feb / march when customer buying pattern normalise.

**5) Cost**
a) RIVERSTONE's cost per 3.5g nitrile glove now at usd25. Cost in line with raw material. Currently, they're seeing different prices from different supplier, range is around $1300-1700 per tonne. Going fwd average should be in the range of $1300. Q3 avg raw mat cost was at $2100
b) Long run Malaysian hv advantage over China. China in the past have got raw mat supplier which produces cheaper cost / lower quality. Malaysia v China raw mat supplier gap have since become smaller. In short as raw mat advantage diminish, Malaysia glovemaker should enjoy lower cost.
c) In terms of Energy, labour - Malaysia is not at disadvantage situation.
d) Gas price - Riverstone 60% fuel cost depend on fossil gas. 40% from biomass. They have seen 20% increase in gas price.

**6) TAX**
a) Will be imposed next financial year. Additional 9% above RM100m threshold.

**7) CASH / DIVEDEND / EXPANSION**
a) Cash to be used partially for expansion purposes until 2024. Target is 15b gloves per annum
b) Each phase they will need RM80-100m.. They're also looking to upgrade automation to reduce manpower.
c) Expansion had been delayed by 6m to 1y due to various challenges in construction.
d) Balance for dividend. Will be declared in Q4. Payout should be the same as last year.

**8) CBP Ban / Export to US / ESG**
a) Riverstone not in the risk. They believe they're doing a good job to foreign workers. Mentioned that Riverstone is a benchmark in the industry.
b) Sales to US 40% healthcare. 30% cleanroom
c) ESG efforts: reduce water usage; Reduce wastage; Emission reduction (solar panel + biomass); Worker hostels with gym, indoor sports arena, first aid room, barber shops, grocery shops and laundry services. Foreign employee also get yearly and special bonus, free meals + mobile data, training and giving them higher education. Certified / compliance by SMETA
d) Riverstone also sets up ESG committee.

**Verdict**:
All in all, I came out from the briefing feeling positive. Mr WTS as usual is very objective, stating the situation as it is. Normalisation WILL happen. Times of supernormal profit IS OVER.

Riverstone healthcare gloves have got 20-25% cost advantage over peers. Additionally they still have their cleanroom gloves which continues to be strong. Operation cash flow is strong, net cash over market cap now is now around 50%. Going forward, who would you champion when investing in rubber glove makers? Mine is RIVERSTONE.

cc: @yungwei @Nyago @andy721 @kimkuan @JJ23JJ @mengteck @D240z @asheryap @bleong711 @v147 @kuanbuo @intrawinata @jiunwai @LGoh