Riverstone executive chairman and CEO Wong Teek Son fields more questions after the 1Q briefing. Mr Wong owns a 47.51% direct stake in Riverstone. Photo by Leong Chan Teik 
Riverstone (85 cents) trades at a trailing PE of 14X and a dividend yield of 3%. Market cap: S$319 m. Chart: FT.com
In Taiping, Riverstone's new factory (which is nearing completion) can produce up to 1.1 billion gloves a year. More capacity will come up in subsequent phases of development of the site of 30 acres (equivalent to 30 soccer fields). Photo: CompanyRIVERSTONE HOLDINGS has reported record 1Q profit of RM16.0 m, continuing a string of quarterly improvements in profitability which has also led its stock price to a record high of late.
Revenue grew 8.7% y-o-y to RM87.8 million but gross profit expanded faster at 29.7% to RM26.9 million due to favourable raw material prices.
As a result, the gross margin hit 30.6%, up from 25.7% a year earlier.
As a result, the gross margin hit 30.6%, up from 25.7% a year earlier.
Riverstone's future growth looks secure -- and it stems largely from its new factory in Taipng, Malaysia whose 6 production lines will be commissioned in phases in 2H of this year.
By the end of this year, the factory will be able to produce 1.1 billion gloves annually for use in healthcare and cleanroom environments.
This will boost Riverstone's total capacity by 35.5% to 4.2 billion gloves a year spread over factories in Kuala Lumpur, Thailand and China aside from Taiping.
This is a long way up from the 720 million-capacity it had in 2006, the year of its IPO on the Singapore Exchange.
Indications from the management are that the new factory will get lots of work.
"A few major distributors for healthcare gloves from the US and Europe have qualified us and our new facilities -- I am quite optimistic that orders from them will come in 3Q or 4Q," said Mr Wong Teek Son, the executive chairman of Riverstone, during a 1Q results briefing this week.
While competition is stiff in the industry, Riverstone is emerging as a "good supplier" to these customers who gauge suppliers based not just on pricing and quality but also how they run the business, their management of workers and their level of corporate social responsibility, said Mr Wong.
This is why, even in the face of overcapacity in the healthcare glove business, Riverstone is able to thrive and can even pick and choose customers, he said.
Riverstone will gradually increase its headcount to 300 workers for the new plant which, like its other plants, will be highly automated.
Riverstone CFO Lim Sing Poew (right) with William Toh of New Harbour Capital Partners. Photo by Leong Chan TeikThe company's contractor has already started foundation works for phase 2 (also, 1-billion capacity) on the same 30-acre site which phase 1 sits on. Commissioning of the production lines will start in 3Q next year.
There will be capacity expansion even beyond phase 2 -- details of which have not been released. But this can be deduced from the fact that the 30 acres (land cost: RM12.4 million) exceeds Riverstone's existing factory land area of 22 acres.
So far, Riverstone has funded its capacity expansion with its own cash reserves and expects to continue to do so next year.
As of end-1Q this year, Riverstone had RM109 million cash (end-Mar 2013: RM92.6 m) and no borrowings, a happy position resulting from the business enjoying positive free cashflow since its listing in 2006.
Would it be easier for Riverstone to buy over another company's assets?
"We have no plan for that because to build a plant with the latest technology with the fastest line takes 6-12 months only. If we take over another company, most likely the efficiency will not be there," said Mr Wong.
Asked about the impact of a 20% hike in the price of Malaysian gas, Mr Wong said this took effect from this month (May) and Riverstone is seeking to pass on the higher cost to customers in June. (See The Edge Malaysia article on the gas hike)
"To summarise, whatever is internal, we have controlled things very well so far. What we cannot control are raw material prices and the USD."
See NextInsight's video below for an idea of how gloves are produced in Riverstone's existing plant in Taiping which is several km away from the one that is nearing completion.
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