$SGX-AP4 RIVERSTONE Q2 2022 Briefing Takeaways

RIVERSTONE had become the most profitable glovemaker in Q2, beating HARTA KOSSAN TOPGLOVE etc... Their result highlights the resiliency of the business and how well run the company is. Their top management had steered the company smoothly despite the extremely bumpy roads. Here are some highlights of recent briefings.

1) Q2 Business Breakdowns...
- Revenue: cleanroom vs medical / healthcare: 43/57
- Quantity: cleanroom vs medical / healthcare: 20/80 (total 1.8b gloves)
- GP: cleanroom vs medical / healthcare: 64/36
- GP margin: 60% for cleanroom, 20% for medical / healthcare. Blended 37.7%

2) Price trend & demand / supply dynamics...
- Cleanroom maintained above usd100 per carton in Q2. Healthcare 10% reduction in q2 with ASP at 29$
- Cleanroom can maintain price in Q3 but Q3 demand slowdown abit by about 10% driven by slowdown in China, Riverstone, just like others have problem delivering their products there. Q4 should be better for Q3 as seasonality kicks in.
- Healthcare q3 asp drop to $25. Not seeing improvement demand... Demand had reduced significantly.. in short oversupply in healthcare glove remains. Predicting 2H healthcare business to be much lower.
- Management unsure how long the oversupply will be... Currently distributors are still in overstock situation. Situation could be another 6m to 1Y. Management is seeing China slowing down expansion and new players getting out.

3) Competitive Advantage in Cleanroom Glove
- Any new entrant to cleanroom glove? Not at their grade. For cleanroom glove, there are low to high grade.. class 10, 100, 1000 and beyond.

Riverstone is confident of their competitive advantage in class 10 and 100 due to experience n technology (they can deliver electrostatic clean room gloves).. Low end cleanroom will compete in pricing not quality. In short, they're still comfortable wf the cleanroom business.

- Slowdown in semicon will impact cleanroom glove? Cleanroom glove have got many different customer verticals. Slowdown in semicon will not have so significant impact. Currently they're seeing customers in Pharmaceuticals doing quite well.

4) Plant utilisation and capacity
- In Q2, utilisation is about 74%. This will shrink to 65% in Q3.
- On expansion plan. Management highlights they had always been conservative. Currently they're at 10.5b and looking to add 1-1.5b pieces capacity to be 12b. The plant is ready but they will delay commissioning the additional 1.5b piece
- Beyond 2022, there are also more phases of expansion (land is available) but there're No urgency to increase capacity.

5) Labour issue
Labour issue is no longer acute now that plant utilisation had dropped

6) Cash and dividend
Riverstone has 1.2b cash, after pay 10c dividend upcoming still have 1b cash.. They plan to reserve some for future expense, and to pay the rest as dividend.

7) Industry historical trend
There had been many downcycles in glove sector, 2013/14, 2008 was the last severe ones where hundreds of glove factories being built. Many newcomers exited as soon as they entered.

8) Others
- Raw mat price is reducing trend.. stable or reduce.
- Selling below cost? Malaysian players are quite disciplined to NOT do that but the Chinese players ARE selling below cost / at cost.
- How come their ASP for healthcare is higher than peers? Riverstone mentioned that for healthcare, they have lower volume (capacity), and that a portion is customised products..

All in all, came out from the briefing feeling satisfied and proud to be a shareholder of the company as they're navigating rough waters pretty well. I expect Q3 earnings to sequentially be lower, but it will still be better than the industry.

In the first post of this thread, I mentioned that Riverstone could challenge getting RM300-400m of profit, and they're still on track, that's not an easy feat in this market. The company is currently trading around 9-12x forward PE and have got 35% of their market cap in cash.

@zhexiangxd @maxtan @Maxtan727 @terence775 @Jay888 @victoryong @THL02 @FIRLGuys @leonjakelim @Jasonsum @Jinnsern @hokuan @jiaming8yap