Strong demand for healthcare gloves, new capacity coming on stream as scheduled, plus a steady stream of dividends is keeping Riverstone Holdings' stock price firm.

The stock price of the leading glove manufacturer from Malaysia edged past its recent high of S$1.10 to close at S1.11 on Wednesday after it posted a net profit growth of 23.9% for 2QFY2018 and declared a dividend of 1.3 sen. 

wongts8.14Wong Teek Son, executive chairman and CEO, Riverstone Holdings. NextInsight file photo
The Group has paid dividends every year since its IPO in 2006.

It paid total dividends of 7 sen per share for FY2017, amounting to a dividend payout ratio of 40.7%.

The Group's 23.9% net profit increase to RM33.6 million for 2QFY2018 was attributed to a favorable USD/RM and relatively lower raw material costs.

 

Financial Highlights

2QFY2018
(RM m)

yoy change

Revenue

214.2

0.5%

Gross profit

48.3

10.6%

Gross profit margin

22.5%

2ppt

Net profit attributable to shareholders

33.6

23.9%


For more information, refer to its 2QFY2018 results media release here.

"The introduction of double gloving as a healthcare practice is expected to significantly increase U.S. demand for nitrile gloves from 2H2019," said CEO Wong Teek Son at its 2Q2018 results briefing on Wednesday (8 August).

80% of the Group's production capacity is allocated to the production of healthcare gloves.

Stock price 

$1.11

52-week range

96 c – $1.19

PE (ttm)

18.5

Market cap

S$815 m

Net Cash

S$23.6 m

Dividend
yield
(ttm)

2.15%

Year-to-date return

6.61%

Source: Bloomberg/ Company

Wearing two surgical gloves significantly reduces infection risk to operating room personnel. The second glove helps protect against bloodborne pathogens when the outer glove is punctured. 

Secondly, colored undergloves can help improve occupational safety by increasing awareness of perforations to synthetic outer gloves. This is because most punctures to gloves are tiny and identified only after surgery.

"10 out of 500 gloves are manufactured with invisible pinhole defects," said Mr Wong. He expects additional demand for 500 million gloves a month as a result of the double gloving trend.

Capacity Ramp Up On Track

Year

Added Capacity

Final Capacity

2013

--

3.1 billion

2014

+1.1 billion

4.2 billion

2015

+1 billion

5.2 billion

2016

+1 billion

6.2 billion

2017

+1.4 billion

7.6 billion

2018F

+1.4 billion

9.0 billion

2019F

+1.4 billion

10.4 billion

"We have started laying the foundation for the factory under phase 6 of our production expansion plan," said Mr Wong.

Phase 6 will increase the Group's total annual production capacity to 10.4 billion pieces of gloves a year by the end of 2019.

DBS Vickers analyst Carmen Tay maintained her 'Buy' call on Riverstone on 8 August with a target price of S$1.25, citing capacity expansion, a sustained increase in the cleanroom glove mix (and thus margins), and inorganic growth as potential price catalysts.


Impact of U.S.-Sino Trade War

Responding to a question about the prospect of demand shifting to Malaysia due to the tariffs imposed by the U.S. on PRC manufacturers, Mr Wong said:

"Most glove manufacturers in the PRC started out by making PVC gloves and only entered the nitrile glove market later. Once the 10% tariff is imposed, PRC glove manufacturers will become less competitive.

Target prices

DBS Vickers

$1.25

CIMB

$1.28

"However, this does not impact Malaysian glove manufacturers as they are not in the PVC glove market. Malaysian glove manufacturers will benefit from the 10% tariff on the PRC manufacturers of nitrile gloves."



Watch video of our visit to Riverstone's factory -->


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