$SGX-AP4 RIVERSTONE - The BEST Performing Glove Counter in 2022

Year to date in 2022, Riverstone is the best performing glove counter in the world in terms of absolute return (share price + dividend [13c sgd]).

On Tuesday, Riverstone reported their Q1 2022 result (on the same day as $HARTA / 5168 (HARTALEGA HOLDINGS BERHAD)), and they also reported the strongest quarterly financial performance in the glove industry with a flat QoQ earnings. Probably the only glove counter who achieved that thus far.

Here's some briefing takeaways.

1) Financials QoQ
- Revenue -2% QoQ, Net Profit -2% QoQ.
- In Q1 2022, Volume sold increase 21%, ASP came down together with cost per unit, but overall margin down hence qoq not much change..

2) Q1 2022 breakdown...
Total volume sold: 2.14b gloves (21% increase QoQ)
Volume: 20% cleanroom 80% healthcare
Revenue: 42% cleanroom 58% healtcare
GP: 60% cleanroom 40% healthcare
GP margin: 55% cleanroom 24% healthcare

- Cleanroom ASP same as q4 whilst healthcare ASP around USD30-32
- Utilisation in Q1 arond 80%

3) Current Q2 situation and beyond
- Cost of production per glove going up in Q2, gas prices gone up from RM32 to RM40, raw mat BD increase due to oil price, min wage on labour - management think there could be overall 5% increase in cost.
- Medical glove ASP hit lowest point in April but May and June increased slightly. Volume sold and utilisation should be able to sustain
- For cleanroom glove, ASP had been very stable. Volume will see increment as Q1 is seasonally the weakest for cleanroom glove. On target to produce 2-2.5b cleanroom glove for the year. There's a labour constraint on cleanroom upon the labour intensive sterilisation process. So once they get additional 15% of total labour, they can optimise their cleanroom production.
- Riverstone on target to deliver 10b gloves in volume for FY22
- Overall, margin going forward should be quite comparable to q1 2022.

4) Industry analysis
- On Chinese competition, it's being monopolised by a few big players. They wanna get market share by selling lower price hence their result shows losses or single digit margin for Intco. Management believe they can't sustain the ASP going forward. Management believes their distributors still prefer Malaysian glovemakers for the consistency of quality and reliability.
- Whilst hitting volume gain this quarter, management highlights it is because of low order in q4. It’s not because of strong demand just yet. Distributors, especially from Europe are starting to replenish stock.
- Management mentions that the current industry situation is not different than decades ago. They're also starting to see some smaller manufacturers whom had made alot of money during Covid and discouraged by what's happening in the past few quarters are considering to take profit / close their business.

5) Other quick points
- Blended tax rate assume at 24.4%. Unlike Harta, Riverstone FY ends in December. There're also some reinvestment allowance.
- Current capacity 10.5-11b. 2022 end will be 12b.
- Not looking to acquire / buy out glove companies because they believe their own built new lines has better technology and automation.
- Riverstone been getting new clients from cleanroom industry.
- Long term driver for cleanroom glove is the increase capex spending by the electronics / semiconductor sector globally as well as pharmaceutical industry.


Summary:

Riverstone's earnings driver going forward would be: a) increasing sales volume and capacity utilisation b) getting foreign labour in, train them quickly so they can plug the labour shortage in the cleanroom segment to maximise its potential. Management mentions that this can be "significant". c) FX rate.

Risk to the investment would be slower demand / volume sold, margin for both glove segment keep shrinking.

In the first post of this thread, I mentioned that Riverstone could challenge getting RM300-400m of profit, and they're on track. No one expected a glove company that's able to maintain profit QoQ, but Riverstone did it!

Current market cap of SGD1.12b (MYR3.5b), of which cash position in balance sheet is MYR1.7b (50%). The stock is trading at merely 10x FY2022 expected earnings or 5x FY2022 ex cash earnings.

Despite weak market sentiment, this is still a blardy strong solid counter to stay invested in.

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