Riverstone Holdings Ltd

Established in 1991, Riverstone Holdings Ltd (Riverstone) has become a leading cleanroom and healthcare glove manufacturer and exporter of the world. As at 17 February 2019, Riverstone is worth S$ 837.4 million in market capitalization, thus, placing it as the 4th most valuable rubber glove producer globally today.

In this article, I’ll share its fundamentals, latest financial results and evaluate an investment in Riverstone based on its latest stock price of S$ 1.13 a share. Here are 10 things to know about Riverstone before you invest.

1. Glove Production Capacity
   Riverstone has achieved CAGR of 26.75% in glove production capacity a year, increasing from 0.9 billion in 2008 to 7.6 billion in 2017. In 2018, it continues to ramp up its capacity with its Phase 5 Expansion that would raise its total production capacity to 9.0 billion by end 2018. After it has completed, it would proceed with Phase 6 Expansion where it would be expanding its production capacity to 10.4 billion by end 2019.
   
   
   

Source: Riverstone’s Annual Reports

2018e & 2019e are estimates from its Annual Report 2017.

1. Key Markets
   81.2% of total revenues in 2018 consists of export sales. Riverstone had been exporting its products to a handful of markets such as Europe, the United States, China, and Thailand. Its sales breakdown are as follows:
   
   
   

No.	Markets	Revenue (RM ‘000)	Revenue (%)
1	Europe	274,979	33.6%
2	Malaysia	153,779	18.8%
3	United States	158,564	19.4%
4	China	55,196	6.8%
5	Thailand	42,614	5.2%
6	Others	132,306	16.2%
Total Revenues	817,438	100.0%

Source: Riverstone’s Annual Report 2017

1. Revenue
   Revenue had increased by CAGR of 21.53% to RM 817.4 million in 2017 from RM 141.4 million in 2008. It is directly attributable to Riverstone’s continuous expansion of production capacity and sales growth for both domestic and export markets for the last 10 years.
   
   
   
   

Source: Riverstone’s Annual Reports

1. Profitability
   Riverstone has maintained stable net profit margin (NPM) averaging as much as 17.20% for the 10-year period. Its shareholders’ earnings have increased by CAGR of 20.19%, rising from RM 24.4 million in 2008 to as high as RM 127.6 million in 2017. It has 10-Year Return on Equity (ROE) average of 19.13% a year. It means, Riverstone has generated, as much as RM 19.13 in annual earnings from every RM 100.00 in shareholders’ equity from 2008 to 2017.
   
   

Source: Riverstone’s Annual Reports

1. Cash Flow Management
   From 2008 to 2017, Riverstone has generated RM 736.7 million in cash flow from operations and raised RM 70.7 million in net long-term debt and equities. Out of which, Riverstone has:
   
   – Spent RM 510.4 million in capital expenditures (CAPEX).
   – Paid out S$ 248.9 million in dividends to its existing shareholders.
   
   
   It has grown its cash balance from RM 46.5 million in 2008 to RM 114.3 million in 2017. Thus, it indicates that Riverstone is a cash-cow which is capable of generating operating cash flows and investing them to boost sales and profits in the long-term.
   
   
   

Source: Riverstone’s Annual Reports

1. Latest 12-Month Results
   From Q4 2017 to Q3 2018, Riverstone had made RM 874.3 million and RM 131.0 million in revenue and shareholders’ earnings. Thus, it made a total of 17.7 sen or 5.87 Singapore cents in earnings per share (EPS).
   
   
   
   

Period	Revenue(RM ‘000)	Earnings (RM ‘000)	Earnings per Share (Sen)
Q4 2017	210,694	34,226	4.62
Q1 2018	209,820	31,084	4.19
Q2 2018	214,240	33,553	4.53
Q3 2018	239,528	32,123	4.33
Total	874,282	130,986	17.67

Source: Riverstone’s Quarterly Reports


As at 30 September 2018, it has recorded non-current liabilities of RM 25.8 million and shareholders’ equity of RM 686.4 million. As such, its gearing ratio is 3.75%. Also, Riverstone has current assets of RM 363.8 million and current liabilities of RM 125.6 million. Its current ratio now stands at 2.90. Thus, it shows that Riverstone is financially adequate to fund its working capital and its expansion plans in 2019.

1. Recent Land Purchases
   As at 9 November 2018, Riverstone has announced its acquisitions of 3 parcels of industrial lands at Kamunting Industrial Estate for as much as RM 18.2 million. Riverstone intends to construct new factories on these lands to expand its manufacturing business in the future.
   
   
   
2. P/E Ratio
   As at 17 February 2019, Riverstone is trading at S$ 1.13 a share. Hence, its current P/E Ratio is 19.25 based on its latest 12-month EPS of a total of 5.87 cents. It is close to its highest P/E Ratio presently.
   
   
   

1. PEG Ratio
   Based on Note 4, Riverstone had grown its earnings at CAGR of 20.19% per annum. Thus, its PEG Ratio is 0.95, indicating that it is undervalued.
   
   
   
2. P/B Ratio
   As at 30 September 2018, Riverstone has net assets of 92.6 sen a share or 30.77 Singapore cents a share. Hence, its current P/B Ratio is 3.67. It is higher than its 10-Year Average of 2.84 presently.
   
   
   

1. Dividend Yields
   Riverstone had paid out 7 sen or 2.33 Singapore cents in dividends per share (DPS) in 2017. Thus, if Riverstone is able to maintain DPS at 2.33 cents a year in coming years, its dividend yields is 2.06% per annum, a bit lower than its 10-Year Average of 2.66% per annum.
   
   
   

VIA’s Verdict

Riverstone has delivered rapid growth in sales, profits, and dividend payouts for the past 10 years. It has laid out a tangible plan to grow sustainably for the next few years with Phase 5 & 6 expansion plans in place.

In terms of valuation, its P/E Ratio and P/B Ratio are close to their highest while dividend yield is below its 10-Year average. The positive lies in its PEG Ratio as it is still below 1.0. If compared to Hartalega and Top Glove, its PEG Ratio is low at the point of writing.

So, is Riverstone an investment for you?

Well, if you are seeking high dividend payouts, I’m sure, you’ll find lots of other stocks that pay better yields than Riverstone. But, if you are seeking for growth, then, you may consider Riverstone if you fancy its future growth plan and place more importance on PEG Ratio than other ratios such as P/E and P/B Ratio.

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