Demand for gloves from the healthcare sector continues to moderate from the extraordinary highs seen during the pandemic, but one glove manufacturer believes its business remains robust thanks to its customers from one particular sector: the electronics and semiconductor industry.
Gloves designed for use in this area are highly customised and require in-depth design knowledge and manufacturing experience, says Wong Teek Son, executive chairman and chief executive officer of Riverstone Holdings AP4 . “Having been in the business for over 30 years, our cleanroom products possess a unique competitive advantage.”
Riverstone’s focus on cleanroom gloves comes as the glove sector is experiencing market consolidation and new competitors from China. This has resulted in falling selling prices and demand, says Wong, who co-founded Riverstone in 1989. In line with this industry-wide trend, the company’s revenue declined to RM1.26 billion in FY2022 from RM3.08 billion in FY2021 while profit after tax dropped to RM314.4 million in FY2022 from RM1.42 billion in FY2021.
Following this period of consolidation, a full recovery could be on its way. The mainboard-listed company posted q-o-q growth in 2QFY2023 ended June, with gross profit up 4.7% q-o-q to RM64.8 million ($18.7 million) and net profit up 0.3% q-o-q to RM46.9 million. Revenue for the quarter, however, fell 5.8% q-o-q to RM224.2 million.
“Our long-term strategy to reconfigure our product portfolio is gaining good traction,” says Wong. “In 2QFY2023, we saw a larger proportion of customised products sold to customers in the healthcare segment. These unique products are, on average, better-priced and can fetch higher margins for the business.”
In addition to gloves, the company also manufactures cleanroom consumables, such as finger cots and facemasks. Riverstone noted a decrease in orders for cleanroom gloves as end-demand for consumer electronics dropped. As a result, revenue and net profit fell 38.7% and 55.2% y-o-y for the 1HFY2023 ended June.
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Nonetheless, the company expects the consumer electronics sector to recover from the nearterm headwinds in the first half of 2024. “That, coupled with an improving product mix, will set us up for a stronger FY2024,” adds Wong.
While earnings were not as strong as during the pandemic years, Riverstone, under Wong, has made it a point to reward shareholders.
Diluted earnings per share (EPS) grew 0.3% q-o-q to 3.16 sen in 2QFY2023. In turn, Riverstone declared an interim dividend of 5 sen per share, translating to a dividend payout ratio of 79% based on 1HFY2023 net profit.
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In FY2022, Riverstone distributed a total of 16 sen per share. In addition, the group also paid a special interim dividend of 8 sen per share and a final dividend of 10 sen per share, for a total of 34 sen.
At 24, 48 and 34 sen per share, Riverstone’s dividend payouts during the pandemic years of FY2020 to FY2022 were much higher than its FY2019 distribution of 7.4 sen per share.
“In FY2022, we continued to uphold our commitment to rewarding our shareholders with dividends premised on our strong balance sheet position,” says Wong.
For its growth in profit after tax and weighted return on equity that has performed better than its sector peers over the past three years, Riverstone has been recognised as a winner in The Edge Singapore’s Billion Dollar Club Awards 2023, emerging also as the overall sector winner among listed companies in the healthcare services and pharmaceuticals industries.
“Even though there is very tough competition in the glove industry, we are different from others,” says Wong to The Edge Singapore. “We have cleanroom gloves and also, we are producing highly customised products for healthcare. So yes, there is tough competition, but we are still able to continue to grow and sustain our business going forward.”
Chinese competitors
Malaysia-headquartered companies like Riverstone have traditionally enjoyed a foothold in the nitrile glove manufacturing industry, while Chinese glove manufacturers produced PVC gloves, says Wong. “During Covid-19, they entered the nitrile [glove] market.”
Most of these Chinese “newcomers”, as Wong calls them, are employing a strategy to gain market share by sacrificing profit and selling at a loss.
As a result, some of these Chinese names have already surpassed established Malaysian manufacturers, breaking into the top five largest companies by production volume.
At the moment, there are too many healthcare glove manufacturers in the market, says Wong, and supply is greater than demand. Riverstone does not plan to compete with the Chinese “mass volume producers”, says Wong. “They have a cost advantage in terms of energy costs; Malaysia uses gas while China still uses coal. Our manufacturing costs are higher by at least US$2 per thousand pieces of gloves.”
Instead, Riverstone will focus on maximising profit, says Wong. “We focus on value-adding and [maintaining] certain profit margins for every glove that we sell.”
The selling price of healthcare gloves is pegged closely to raw material prices. “Prices of related raw materials have reduced quite significantly in the second quarter of 2023; that’s why the selling price fell and resulted in our lower revenue,” says Wong.
Wong eyes a turnaround in 2H2024, subject to the “discipline” of manufacturers. “Under normal circumstances, distributors will start to do purchases when their stock has depleted. We think that in 2024, the situation will improve compared to existing market demand.”
‘Insulating’ the company
Companies in the pharmaceutical and high-end electronics and semiconductor sectors require cleanroom gloves to protect sensitive products and devices from contamination, corrosion and electrostatic discharge.
Riverstone is an own-brand manufacturer (OBM), developing high-tech cleanroom gloves that are sold directly to customers via regional offices.
According to Wong, 25% of Riverstone’s volume is shipped to the electronics and semiconductor industry, “mainly to Asia-Pacific countries, such as China, Japan and South Korea; as well as Europe and the US”.
Riverstone is focusing on this niche to “insulate” the company from tough competition, especially from the competitors in China, says Wong.
2023 may not be a good year for the electronics and semiconductor industry, notes Wong, but according to reports by market intelligence firm International Data Corp, global smartphone, PC and tablet shipments are projected to decline in 2023 but will subsequently rebound in 2024. “But for us, we are not dealing with direct products, we are dealing with indirect products, [such as] gloves to protect their products. We have [experienced] some impact but the impact is not as serious as the manufacturers of direct parts.”
Being a responsible business
Even as Riverstone rises to the challenges of the market, it has been paying attention to the wider environment.
Product manufacturers like Riverstone face reputational and regulatory pressure to ensure their supply chains and operations are compliant with environmental, social and governance-related metrics.
Demand is growing for lower carbon footprint products as consumers are more aware of the effects of climate change, says Wong. “We believe that the sustainability of our business depends on our ability to produce innovative products that have minimal impact on the environment.”
Riverstone’s research and development team has been collaborating with suppliers to produce a latex formula that requires a lower temperature for curing. “With the new formula, the production process will consume less natural gas and electricity,” says Wong.
Riverstone operates six manufacturing facilities across Malaysia, Thailand and China. The company aims to reduce energy use per 1,000 pieces of gloves by 2% each year, achieving at least a 10% reduction in energy intensity by 2025 from 2020 levels.
Riverstone uses biomass like wood chips and wood residuals to generate steam and provide heat to ovens and tanks at its dipping lines. At some manufacturing plants, the company also uses agricultural by-products, such as palm kernel shell, mesocarp and rice husk, as biomass.
To reduce greenhouse gas emissions, Riverstone has installed solar panels on the rooftops of its wholly-owned subsidiary Eco Medi Glove’s manufacturing plants in Taiping, Perak. The solar panels cover 16.3% of the rooftop space. In 2022, the solar panels yielded 576 kilowatt-hour (kWh) of electricity and offset an estimated 337 tonnes of carbon dioxide.
Meanwhile, Riverstone aims to reduce the total water intensity by 5% each year, reaching approximately 25% reduction by 2025 from 2020 levels. The company has also committed to halving its waste by 2025. Riverstone says it has eliminated colour variation from its products.
This reduces the frequency of product changeover, which requires the production crew to cool the oven and remove remaining raw material, water and chemicals in the dipping tanks.
Each changeover increases water consumption, energy use, chemical use and product losses. “By having fewer product variations in our portfolio, we can decrease the frequency of changeover, and improve our environmental performance,” says the company.
Riverstone employs some 3,000 staff. Some 2,800 workers are based in Malaysia, while more than 200 are located in Thailand and the rest are in China, says Wong. The company’s offices in the Philippines, Vietnam and Singapore employ less than five people each, he adds.
On the labour front, Riverstone has engaged third-party auditors Sedex Members Ethical Trade Audit, Business Social Compliance Initiative and Responsible Business Alliance.
In FY2022, Riverstone conducted third-party audits at all plants. The auditors assess areas including signs of forced labour or child labour, employee health and safety, business ethics and management system.
“We will not compromise the quality of our products and will remain compliant with social and environmental regulations,” says Wong. “The group continues to engage external qualified consultants for audits to ensure continuous certification of all manufacturing plants.”
