FY2015   % change
Revenue RM560.2 m 40.3
Net profit RM126.5 m 78.4
Operating cashflow RM122.1 m 94.4
Net cash  RM128.7 m 62
Final dividend 5.25 sen (post 1:1 bonus share issue) 131
Share price S$1.00  
PE 17.3  

RIVERSTONE HOLDINGS achieved a record RM126.5 million net profit in FY2015 as an increase in production capacity was easily absorbed by higher demand from new and existing markets.

The Malaysian glove manufacturer also benefited from stable raw material prices and a strengthening USD against the ringgit.

Its production capacity rose by 1 billion gloves a year to 5.2 billion by end-2015 with the completion of its Phase 2 expansion in Taiping.

It is set to increase by another 1 billion by this year-end which, of course, means further growth in revenue and profits, if the demand keeps up. Riverstone is confident of that (more on that later in the Q&A section).

In recent years, competitors in Malaysia have been expanding their capacity too, which raises the spectre of a glut in capacity -- and the risk of a price war. 

WongTeekSon2.16Wong Teek Son, executive chairman and CEO of Riverstone, fielding more questions after the FY15 results briefing. Photo by Leong Chan Teik
Riverstone executive chairman and CEO Wong Teek Son noted that expansion plans of some players have been met with delays related to the shortage of utilities and infrastructure.

As for a price war, he acknowledged that it happened in 2005 – 2006 and caused net profit margins to fall to 5 – 10%. Some 10 years earlier, in 1995, a price war had also broken out.  

Is a new threat lurking around the corner?  "This time it is different, however, due to the introduction of nitrile gloves," replied Mr Wong. (Nitrile gloves are made from synthetic rubber)

Previously, mostly latex gloves were produced, and the production technology was quite mature, so there was not much that could be improved on to drive down prices, explained Mr Wong.  

"But nitrile glove manufacturing technology has kept improving. As nitrile glove prices became lower, it became easier for nitrile to replace latex and PVC.  

"People are concerned about price reduction of nitrile gloves but this is an opportunity for nitrile gloves to replace other types of gloves," said Mr Wong.  

The margins for PVC and latex gloves are lower than that of nitrile and there is not much room to lower the cost of production of latex and PVC gloves.  

Nitrile gloves still can give good margin on mass production.

"If nitrile glove manufacturers are innovative enough, we can maintain low prices, improve efficiency, replace other gloves and preserve our profit margin."

Here are some of the attendees' questions and Mr Wong's answers at the briefing: 

Q: Do you see a slowdown in demand for cleanroom gloves from non-HDD customers?

strip9.14Gloves being stripped off the production line at Riverstone's factory in Taiping. NextInsight file photo.A: We noticed that the general market slowed down in 4Q2015.

Q: What made new customers switch to using Riverstone’s gloves?

A: They switched to our brand as they liked our glove quality. Also, many customers were switching materials from latex or PVC to nitrile.

Q: Which cleanroom segments are growing?

A: The tablet and mobile segment, lenses, batteries and pharmaceuticals. 

Q: What was the ASP for healthcare and cleanroom gloves in 4Q2015?

A: The ASP for healthcare gloves declined last quarter. The ASP for cleanroom gloves in ringgit, on the other hand, increased. 

Q: How much did ASP for healthcare gloves drop by?

A: The ASP fell by about 5% quarter-on-quarter (qoq).  

Q: Why was your tax rate so low in 4Q2015?

A: We benefitted from the reinvestment allowance after the completion of Phase 2.

Q: Have you fully utilized your tax incentives? What is the CAPEX for FY2016?

A: CAPEX is expected to be about RM70 – 80 million. Yes, we have fully utilized our tax incentives for 2015.

(The tax incentives were fully utilised for Riverstone Resources Sdn Bhd, the corporate entity and subsidiary in KL which houses both cleanroom and healthcare gloves production. Some CAPEX will be spent in 2016 on this plant by replacing some of the older production lines to newer ones, so there will be benefits from Reinvestment Allowance for this subsidiary this year. As for Eco Medi Glove, the entity that is housing all the expansion at Taiping, it will continue to benefit from both Reinvestment and Capital Allowance as long as there is CAPEX. This is expected to last till at least FY2018 given the expansion plans Riverstone has.)

Q: Which geographical market do you see growth coming from?

A: We have been successful in penetrating the US market and can expect to see quite a lot of contribution from this region. In order to have an edge over competition, we continue to focus on customization and on the niche markets in the US. For example, we have recently penetrated the laboratory market. 

Stephanie Chong contributed to this article.

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