20 March 2014

Riverstone - Niche Player in Glove Market

Background of the Company

Malaysia based Riverstone is a global market leader in the manufacturing of nitrile and natural rubber clean room gloves used in highly controlled and critical environments as well as premium nitrile gloves used in the healthcare industry. The company's proprietary "RS Riverstone Resources" brand is the preferred cleanroom glove for use in high-tech manufacturing industries. The company also manufactures cleanroom consumables such as finger cots and facemasks. Its customers are global leaders in the HDD, LCD, semiconductor, consumer electronics, pharmaceutical and healthcare industries. The company employs more than 1,000 people throughout its five manufacturing facilities in Malaysia (3), Thailand (1) and China (1) with an annual production capacity of 3.1billion gloves as at 31 December 2013. It also has an established global network of sales offices to serve its customers in Singapore, Malaysia, Thailand, the Philippines, China and the U.S. Riverstone was listed on the Mainboard of Singapore in 2006.

Financial Statement Analysis (FY2013)

The group recorded 15.53% growth in revenue and 36.67% growth in gross profits compared corresponding period FY2012 mainly due to to improvement in productivity and favourable raw material prices. The net profit grew 46.21%, however due to the dilution effect of warrant conversion last year, the EPS growth is estimated at around 30.43%. ROE was estimated at around 20% - 25%.

The group recorded a healthy free cash flow level at around RM40M (Net Operating Cash Flow - Net Investing Cash Flow), which indicates that there is little issue of the group to continue its dividend payout policy of at least 40%.

Liquid Ratio (Cash & Equivalents / Current Liabilities) stood at more than 1.0X, indicates that the group have a healthy financial condition and it could allow the group to grow even further as the glove industry is expected to grow about 10% CAGR until year 2020.

If long term growth rate is about 10% - 12% and we value the counter using dividend growth model, the intrinsic value would be in the range of 50c to 90c. The share price is now trading at around 13.3 trailing PE.

Chart



Riverstone stock price performance is quite in tandem with the financial performance for the past 1 year as the stock price rose about 60% compared to 46% rise in net profits. Nonetheless, I would think the share price is quite fairly valued at this level. As you can see from the chart, the MACD signal turned negative since middle of March 2014.


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