Riverstone Holdings

[(cy)]

if we are talking about margins, then it is important to distinguish the large variation between cleanroom and healthcare gloves. if you look at some of the analyst reports, gross margin for cleanroom gloves are much higher (30-35%) compared to healthcare gloves (15-20%). as of FY2014, the revenue contributions are even, hence resulting in the sustainable blended gross margins (FY2014: 27.2% vs FY2013: 27.3%). in terms of absolute ASPs, it was reported by some of the analysts that ASP for cleanroom gloves is about 2.5-3.0 times higher than that of healthcare gloves. one of the key differentiating factor is that Riverstone is a clear leader for the higher specification Class 10/100 cleanroom gloves where they control about 60% of the world's market share, supplying mainly to HDD and semi-conductor manufacturers. this first mover advantage clearly sets them apart from their industry peers.

Riverstone also sell directly to customers for their cleanroom gloves while they sell to distributors for the healthcare gloves.

it is also noteworthy that the raw material for nitrile gloves (which contribute to 90% of Riverstone's revenue as of FY2014) is actually butadiene instead of natural rubber (latex). prices for this commodity seem to have stabilised though at 5-year low according to data found on MREPC.

while some of the industry peers have seen margin compression, Riverstone has maintained it while growing their top and bottomline figures. apart from a two-prong growth approach in both cleanroom and healthcare gloves, the high utilisation rate of 90% (essentially at full capacity) sets them apart from some of the larger peers who are at 70% utilisation rate.

[CityFarmer]

A few small corrections, on the very informative post.

1) FY2014 revenue contribution was 70% (healthcare) and 30% (Clean-room), IIRC. The healthcare contribution will grow over time, with the capacity expansion

2) Riverstone mostly go direct for both healthcare and clean-room customers, as far as I know.

Glove makers are price takers. Riverstone managed to maintain the ASP, may due to its customer strategy. A prolong ASP downtrend pressure, is a real issue, even for Riverstone, IMO

Riverstone's production isn't the most efficient, thus automation is its next challenge, among other cost reduction initiatives to reduce production cost.

if we are talking about margins, then it is important to distinguish the large variation between cleanroom and healthcare gloves. if you look at some of the analyst reports, gross margin for cleanroom gloves are much higher (30-35%) compared to healthcare gloves (15-20%). as of FY2014, the revenue contributions are even, hence resulting in the sustainable blended gross margins (FY2014: 27.2% vs FY2013: 27.3%). in terms of absolute ASPs, it was reported by some of the analysts that ASP for cleanroom gloves is about 2.5-3.0 times higher than that of healthcare gloves. one of the key differentiating factor is that Riverstone is a clear leader for the higher specification Class 10/100 cleanroom gloves where they control about 60% of the world's market share, supplying mainly to HDD and semi-conductor manufacturers. this first mover advantage clearly sets them apart from their industry peers.

Riverstone also sell directly to customers for their cleanroom gloves while they sell to distributors for the healthcare gloves.

it is also noteworthy that the raw material for nitrile gloves (which contribute to 90% of Riverstone's revenue as of FY2014) is actually butadiene instead of natural rubber (latex). prices for this commodity seem to have stabilised though at 5-year low according to data found on MREPC.

while some of the industry peers have seen margin compression, Riverstone has maintained it while growing their top and bottomline figures. apart from a two-prong growth approach in both cleanroom and healthcare gloves, the high utilisation rate of 90% (essentially at full capacity) sets them apart from some of the larger peers who are at 70% utilisation rate.

[hancheng08]

A few small corrections, on the very informative post.

1) FY2014 revenue contribution was 70% (healthcare) and 30% (Clean-room), IIRC. The healthcare contribution will grow over time, with the capacity expansion

2) Riverstone mostly go direct for both healthcare and clean-room customers, as far as I know.

Glove makers are price takers. Riverstone managed to maintain the ASP, may due to its customer strategy. A prolong ASP downtrend pressure, is a real issue, even for Riverstone, IMO

Riverstone's production isn't the most efficient, thus automation is its next challenge, among other cost reduction initiatives to reduce production cost.

if we are talking about margins, then it is important to distinguish the large variation between cleanroom and healthcare gloves. if you look at some of the analyst reports, gross margin for cleanroom gloves are much higher (30-35%) compared to healthcare gloves (15-20%). as of FY2014, the revenue contributions are even, hence resulting in the sustainable blended gross margins (FY2014: 27.2% vs FY2013: 27.3%). in terms of absolute ASPs, it was reported by some of the analysts that ASP for cleanroom gloves is about 2.5-3.0 times higher than that of healthcare gloves. one of the key differentiating factor is that Riverstone is a clear leader for the higher specification Class 10/100 cleanroom gloves where they control about 60% of the world's market share, supplying mainly to HDD and semi-conductor manufacturers. this first mover advantage clearly sets them apart from their industry peers.

Riverstone also sell directly to customers for their cleanroom gloves while they sell to distributors for the healthcare gloves.

it is also noteworthy that the raw material for nitrile gloves (which contribute to 90% of Riverstone's revenue as of FY2014) is actually butadiene instead of natural rubber (latex). prices for this commodity seem to have stabilised though at 5-year low according to data found on MREPC.

while some of the industry peers have seen margin compression, Riverstone has maintained it while growing their top and bottomline figures. apart from a two-prong growth approach in both cleanroom and healthcare gloves, the high utilisation rate of 90% (essentially at full capacity) sets them apart from some of the larger peers who are at 70% utilisation rate.

where did you get the breakdown of contribution of revenue to be 30% (cleanroom) and 70% (health care) ?

[CityFarmer]

A few small corrections, on the very informative post.

1) FY2014 revenue contribution was 70% (healthcare) and 30% (Clean-room), IIRC. The healthcare contribution will grow over time, with the capacity expansion

2) Riverstone mostly go direct for both healthcare and clean-room customers, as far as I know.

Glove makers are price takers. Riverstone managed to maintain the ASP, may due to its customer strategy. A prolong ASP downtrend pressure, is a real issue, even for Riverstone, IMO

Riverstone's production isn't the most efficient, thus automation is its next challenge, among other cost reduction initiatives to reduce production cost.

where did you get the breakdown of contribution of revenue to be 30% (cleanroom) and 70% (health care) ?

It was disclosed during a result briefing, directly from Mr. Wong (CEO).

The same info should be available in analyst reports or sites e.g. nextinsight

[hancheng08]

A few small corrections, on the very informative post.

1) FY2014 revenue contribution was 70% (healthcare) and 30% (Clean-room), IIRC. The healthcare contribution will grow over time, with the capacity expansion

2) Riverstone mostly go direct for both healthcare and clean-room customers, as far as I know.

Glove makers are price takers. Riverstone managed to maintain the ASP, may due to its customer strategy. A prolong ASP downtrend pressure, is a real issue, even for Riverstone, IMO

Riverstone's production isn't the most efficient, thus automation is its next challenge, among other cost reduction initiatives to reduce production cost.

where did you get the breakdown of contribution of revenue to be 30% (cleanroom) and 70% (health care) ?

It was disclosed during a result briefing, directly from Mr. Wong (CEO).

The same info should be available in analyst reports or sites e.g. nextinsight

Revenue/volume split: In terms of revenue, cleanroom and healthcare gloves had a 50-50 split. In terms of volume, it was 30-70, reflecting the higher selling prices of cleanroom gloves.

Got this from nextinsight. It should be volume instead. Thanks for sharing.

[CityFarmer]

A few small corrections, on the very informative post.

1) FY2014 revenue contribution was 70% (healthcare) and 30% (Clean-room), IIRC. The healthcare contribution will grow over time, with the capacity expansion

2) Riverstone mostly go direct for both healthcare and clean-room customers, as far as I know.

Glove makers are price takers. Riverstone managed to maintain the ASP, may due to its customer strategy. A prolong ASP downtrend pressure, is a real issue, even for Riverstone, IMO

Riverstone's production isn't the most efficient, thus automation is its next challenge, among other cost reduction initiatives to reduce production cost.

where did you get the breakdown of contribution of revenue to be 30% (cleanroom) and 70% (health care) ?

It was disclosed during a result briefing, directly from Mr. Wong (CEO).

The same info should be available in analyst reports or sites e.g. nextinsight

Revenue/volume split: In terms of revenue, cleanroom and healthcare gloves had a 50-50 split. In terms of volume, it was 30-70, reflecting the higher selling prices of cleanroom gloves.

Got this from nextinsight. It should be volume instead. Thanks for sharing.

I may interpret it wrongly. Since nextinsight has reported that, it must be the case.

Thanks for the clarification.

[Yoyo]

Slow and Steady, but Boring

For VBs who are interested to know more about Riverstone, you may like to view the corporate video in the youtube
https://www.youtube.com/watch?v=ELoYVhUYMJ0
https://www.youtube.com/watch?v=gOTh-LKUPKc

There is a good writeup on Fool Singapore.
http://www.fool.sg/2015/03/13/6-interest...ny-part-1/

The Sector Connect seminar was held in 2013, its information though out-dated are insightful, covered in youtube in 3 parts
https://www.youtube.com/watch?v=ZsRY1Bh-OBw

Of particular interests is that the new manufacturing site in Taiping, will be developed over 5 phases, averaging 1 billion gloves capacity increase per phase. Currently at Phase 2, taking production capacity to 5.2 billion by this year end. We are looking at another potential 3 billions in the near future if Riverstone is successful in capturing more customer orders. In management words, considering that they are only 5 years into premier healthcare sector and newly moving in cleanroom gloves for mobile and tablet industry, there are greater opportunity to grow, of growth that are sustainable.

The two glove leaders are Top Glove and Hartalega. Compare share price performance for the last 12 months, Riverstone fared better than these two competitors. Top Glove has just recently announced improved results due to expanded capacity, lower rubber materials cost (both natural rubber and nitrile latex) and strengthening USD billings against MYR costs. (Business Times 19 Mar 2015) Is it not unreasonable to expect an equally if not better improved results for Riverstone (Qtr 1 2015)?

(vested)

[(cy)]

while Riverstone has outperformed its Malaysian peers in terms of share price performance, they came from a lower valuation base compared to say Top Glove or Hartalega which are much larger competitors and command richer valuations (at least P/E wise).

on the company, I believe Riverstone was already in the cleanroom gloves space for mobile, tablets and LCD few years ago but given the fragmented market, there is greater room for growth compared to the higher-specs Class 10/100 cleanroom gloves where they already command more than 50% of the market's share. these higher-specs gloves are supplied to the HDD and semi-conductor manufacturers.

for upcoming 1Q2015's results, Riverstone should see positive contributions from the 1st phase of the expansion so top and bottom line figures should grow yoy from 1Q2014 or even qoq from 4Q2014 but margins would be something to watch for. separately, I believe Riverstone uses mostly butadiene as its raw material for the manufacture of nitrile gloves and not so much of latex. nonetheless, given the continued appreciation of USD against MYR, it will surely benefit Riverstone.

(not vested but follows the company closely)

[GreedandFear]

Various notes from today's AGM. No guarantees as to accuracy so pls do your own due diligence.

1. Although there is increasing competition for clean room gloves, competitors tend to only be able to meet basic requirements and not the customized requirements that Riverstone prides itself on being able to fulfill.

2. Even within healthcare, Riverstone argues that there is room for differentiation. For example, the company developed gloves without Zinc. This is important for the food industry in certain countries.

3. Health care growth is global and, in the company's view is driven by population growth and higher hygiene awareness. It is not just from high income developed countries. Company continues to believe that market growth (10% p.a. According to the questioner) will continue.

4. By the end of Q3, the additional line will be up and running (1B capacity increase).

5. Thailand is operating at full capacity. They need the Thai plant as many of their customers are located in Thailand (ie cannot just switch production to Malaysia) even though it is still cheaper to manufacture in Malaysia than Thailland.

6. Larger Chinese customers are exported to from Malaysia. Smaller ones from the China plant (Wuxi?)

7. For 2014, raw material costs went down. They had to reflect this in their prices to customers. Hence, sales did not increase as much as volume sold.

8. Increase in receivables largely reflects the start of the new production lines. [I am not sure that I agree with this one]

9. Looking at potential external funding for expansion. They either have a stand by bank line signed or they are close to having it.

10. Taiping land parcel has been divided into five sub plots. One for each part of the expansion plan. One was used in 2014, one will be used this year and (presumably) the next three over the next three years. Hence it looks like we can look forward to continued capacity growth through 2018

11. They do not want to acquire other companies to gain capacity as they view their own production lines as the best/ most efficient in the market.

12. Have started to train staff already for the Q3 new production line

13. A lot of shareholders asked for a higher dividend but the company was lukewarm pointing out that they have a major ongoing expansion programme.

14. For clean room, they market direct. For health care, they use distributors.

I thought management was forthcoming and as transparent as they could be. It is not a cheap stock anymore as the discount to the multiples of its Malaysian competitors has narrowed but it seems like a very well run company with a nice growth trajectory for the next 3-4 years, assuming that they can continue to get enough orders to use the additional capacity (which, so far, they have managed). I think Charlie Munger's advise to Buffett was that they shouldn't look for dirt cheap companies but for "great companies at a fair price". Seems to me that this is certainly a very nice company that has successfully differentiated itself in a commoditized business and is trading at a fair price

Vested.

[Bubbachuck]

Thanks for the updates on AGM. Agreed that it is now trading at a fair price, but with the visibility of the future growth.

Comfortably vested.