River of Gloves

 

Riverstone Resources was incorporated in 1991 Malaysia to manufacture cleanroom gloves. In November 2006, the company was listed in SGX. Today, the company also produces healthcare gloves, finger cots, cleanroom packaging bags and face masks. 

Three of its manufacturing facilities are located in Malaysia in Taiping & Bukit Beruntung. One in Wuxi China and one in Thailand. 

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Volume Game

In 1994, the firm production capacity was only 120M gloves. By 2019, capacity have increased to 9.0B; an increase of 75 times. In 2020, the firm plan to increase capacity by another 1.4B gloves.

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Financial

The rise in capacity drove revenue to a high of RM921.0M in FY2018, an increase of 12.7% over FY2017. 

Gross profit fell 3.7% to RM190.0M and gross margin decreased from 24.2% to 20.6% due to supply, competition leading to fall in selling price for healthcare glove plus product mix changes. 

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Competition

Peers in Malaysia are Top Glove with revenue of RM4.8B in the last financial year. This is followed by Hartalega RM2.8B and Kossan Ruber RM2.1B. 

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Economics 101

Revenue in FY2019F is estimated to increase at a lower growth rate compared to FY2018, as law of large numbers slow rate of growth. The law of diminishing returns coupled with competition will also hamper rate of growth in net profit and margin.

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Segments

In FY2018, Europe is the company largest market, contributing 33% of revenue. This is followed by United States with 20% and Malaysia 18%. Rest of the market constitutes 28% of revenue. 

Europe share of revenue peaked at 42% in 2015. In absolute number, business to Europe had been increasing. 

Highest growth comes from United States, increasing it sales mix from 10% in FY2015 to 20% in FY2018 with revenue increasing from RM57M to RM186M. 

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Opinion

Despite these fundamental headwinds, Riverstone is a healthy company with increasing sales and respectable profit margin; riding on the tailwind of growth in the industry. 

Given her size relative to peers, the company could face substantial challenges as industry growth reaches maturity stage in the future. 

Meanwhile, make hay while the sun shines.