• Riverstone (SGX:AP4)'s FY20 revenue rose 85.0% y-o-y to RM1.8 bn, driven by higher sales volumes for both healthcare (HC) and cleanroom (CR) glove segments.
• Gross profit margin expanded to 49.1%, vs 20.1% in FY19, as the strong surge in ASP has more than offset the increase in raw material prices.
• Net margin of 35.4% was higher than our expectation of 30.5%.
• Record high net profit of RM647.3m was up 396% y-o-y, beat our expectations by 15%.

Bumper Dividend From Riverstone

• A bumper final and special dividend of RM0.20 was declared, bringing Riverstone's total dividend for FY20 to RM0.22 per share (vs RM0.037 in FY19), translating to dividend payout ratio of 57%, vs 84% in FY19.

Expect Robust Demand for Healthcare Gloves in Near to Medium Term

• Despite the positive developments on the vaccines for COVID-19, demand for healthcare examination gloves is expected to remain robust as healthcare systems around the world continue to fulfil immediate supply shortfalls as well as replenish reserves. The ongoing COVID-19 testing and vaccine rollout also require the usage of gloves.
• Furthermore, the rise in awareness of hygienic practices globally has led to a higher usage of gloves in the medical as well as other non-medical sectors, such as F&B and retail.

Cleanroom Gloves to Ensure Earnings Resiliency and Sustainable Growth Over the Long-term

• Riverstone’s cleanroom gloves segment contributes ~ 25% to 30% to total revenue and ~50% to gross profit. Even if demand for the more volatile healthcare gloves tapers off, demand for cleanroom gloves should be more stable. The cleanroom glove segment has also experienced growth in demand from the technology and manufacturing industries such as lenses, batteries and semiconductors.
• As the market leader in the high-end cleanroom glove space, Riverstone is poised to benefit from the diversified income streams which allow the group to ensure earnings resiliency for sustainable growth over the longer term.

Even Stronger Balance Sheet

• Riverstone's cash and cash equivalents amounted to RM648.9m as at 31 December 2020, up 400% from end 4Q19.
• Riverstone remains well-positioned to execute its expansion plans for future growth, and weather the macroeconomic headwinds associated with the COVID-19 pandemic.

Capacity Expansion Plans in Place to Capture the Burgeoning Market

• The completion of the Phase 6 of Riverstone’s expansion plans figure by up to 15.0 billion pieces of gloves per annum by end-FY2023, representing a growth rate of 42.9%.
• The new lines coming onboard will allow the group to capture this burgeoning market to drive growth in the coming years.

Riverstone (SGX:AP4)

• We have a BUY call on Riverstone, Target price: S$1.85.

Source: DBS Research - 26 Feb 2021