3 Reasons This Glove Maker Could be a Great Investment
Riverstone Holdings Limited (SGX: AP4) is a manufacturer of specialised cleanroom and healthcare gloves. The group employs more than 3,000 people in its six manufacturing facilities in Malaysia, Thailand, and China. Riverstone’s annual production capacity is 9 billion gloves as of 31 December 2018, and it serves global customers in the hard disk drive, semiconductor, pharmaceutical, and healthcare industries.
Riverstone has grown from strength to strength over the years, as the demand for healthcare nitrile gloves continues to grow worldwide. Here are three reasons I believe Riverstone qualifies as a great investment.
1. The bulk of Riverstone’s business is recession-resistant
Riverstone manufactures both cleanroom rubber gloves and healthcare nitrile gloves. The proportion of cleanroom to healthcare is around 20-to-80, therefore it can be said that the bulk of its business is geared towards the healthcare industry. As cleanroom gloves are catered towards the electronics and semiconductor industries, there is an element of cyclicality associated with this segment of the business.
Healthcare is generally recognised as being resilient to economic cycles due to the consistent demand for such services during good times and bad. The conclusion is that the bulk (80%) of Riverstone’s business is recession-resistant, and this should provide investors with peace of mind.
2. Raw material prices
As nitrile gloves are a commodity product, its pricing is naturally very competitive. Riverstone’s competitors such as Hartalega Holdings Berhad (KLSE: 5168) and Top Glove Corporation Berhad (SGX: BVA) are also producing large quantities of nitrile gloves to be sold to healthcare institutions worldwide.
Nitrile gloves’ main raw material is butadiene, which is an oil derivative. As prices of butadiene have been falling, Riverstone has had to adjust its selling prices downwards. Though this may seem like a negative aspect of the business, the good news is that the group can also raise prices if butadiene prices head back up.
3. Planning for further expansion
The group has outlined its Phase 6 expansion plans, and it’s on track to raise glove production capacity to 10.4 billion gloves per year by the end of 2019, up 15.6%. It recently acquired a land bank in Taiping, Malaysia to expand production. This will raise capacity further for the group, and Wong Teek Son (executive chairman and CEO) feels that this is justified because the market for healthcare gloves is growing at 8% per annum.
The above three facts seem to point towards a steadily growing business that sees consistent, stable demand and that’s growing at a high-single-digit clip. At S$0.92, Riverstone is trading at a historical price-to-earnings ratio of 16 times and a dividend yield of around 2.4%.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Riverstone Holdings Limited and Top Glove Corporation Berhad. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.