SINGAPORE (Feb 26): Glove manufacturer Riverstone Holdings announced 4Q17 earnings dropped 5% to RM34.2 million ($11.5 million) from RM36.0 million in 4Q16.
This was mainly due to the group recording other operating expenses of RM2.7 million during the quarter compared to other operating income of RM2.0 million last year, attributed to net foreign exchange loss and fair value loss of derivatives.
For FY17, the group’s earnings came up to RM129.3 million, a 7.4% increase from RM120.4 million a year ago.
Revenue for the quarter was a record RM210.7 million, 15.1% higher than RM183.0 million in the previous year, due to the ramp up in orders for both cleanroom and healthcare gloves.
The group declared a final dividend of 5.70 sen per share.
See: Riverstone posts 5% drop in 4Q earnings to $11.5 mil
Following the results announcement the DBS is upgrading its rating on Riverstone to “buy” with an increased target price of $1.27.
In a Monday report, analyst Carmen Tay says, “A global market leader in niche Class 10 and Class 100 cleanroom gloves, Riverstone’s edge in the high-tech cleanroom segment sets it apart from the bigger boys.”
Given the intense competition in the healthcare industry, Tay sees value in the group’s growing cleanroom business, which allows it to command consistently higher margins compared to its peers.
Moreover, the demand in the niche cleanroom segment mainly stems from the semiconductor and mobile tablet sectors, hence the analyst sees the group as an indirect beneficiary of the current semiconductor upcycle.
The group has a new cleanroom facility which is set to kick in from 1Q18, to which the analyst predicts will increase its cleanroom capacity by about 33% to at least 2 billion gloves per annum.
The ramp-up on these new capacities should help drive higher growth in cleanroom gloves vis-à-vis the lower-margin healthcare business, allowing Riverstone’s earnings growth of about 16% to catch up with larger peers’ around 17%.
In addition, the group is in the process of accelerating its expansion plans as it is anticipating a strong demand for its cleanroom and healthcare gloves.
The analyst expects the group’s overall glove production capacity to increase to 9 billion pieces by end-2018, compared to 8.2 billion last year and 10.4 billion pieces per annum by end-2019.
However, industry headwinds are expected for 1Q18 with fluctuations in USD/MYR, volatile raw material prices and operating costs, but Tay expects stronger growth to kick in from 2Q18.
“We are more bullish versus consensus as we expect the improved output mix to help sustain margins and drive bottom line,” says Tay.
As at 12.45pm, shares in Riverstone are trading flat at $1.04 or 14.8 times FY18 earnings with a dividend yield of 2.7%.
