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This Singapore-listed Company May Benefit from a Falling Ringgit

The fact that Malaysia’s currency, the ringgit, has been depreciating is probably well-known amongst most Singaporeans by now.

Just a year ago, you would have been able to swap RM2.58 for S$1. Today, you’d need almost RM2.80 to exchange for S$1. The ringgit has also depreciated by nearly 16% over the past 12 months in relation to the U.S. dollar.

This development has taken its toll on Malaysia’s economy and its citizens. But, a falling ringgit may actually be beneficial for some.

One Singapore-listed share which counts a falling ringgit as a tailwind would be Riverstone Holdings Limited (SGX: AP4). The company’s one of the many natural rubber and nitrile glove manufacturers in Malaysia and it has been growing at a break-neck pace.

To the latter point, Riverstone’s annual production capacity has jumped seven-fold from 601 million in 2005 to 4.2 billion currently. The company plans to bring its capacity up to 5.2 billion gloves by the end of this year.

Riverstone’s factories are all located in Malaysia but it exports most of its products; this is where a weak ringgit can benefit the company. By exporting, Riverstone’s collecting revenues in US dollars. In the meantime, a large portion of its costs are denominated in ringgit as a result of the location of its factories. With a falling ringgit, Riverstone will see its costs fall and revenues rise.

This dynamic has indirectly helped improve the company’s performance so far in 2015. You can get a taste of that in Riverstone’s earnings results for the first quarter of the year: Revenue had jumped by 44.8% while profit had spiked by 66.8%.

Foolish Summary

Riverstone’s strong performance and its good fortune with the weak ringgit has not gone unnoticed: Its share price has risen by 75% to S$1.70 since the start of 2015.

But while the gains achieved by the company should rightfully be enjoyed by shareholders now, there’s an important issue they should also be thinking about at the moment.

And that is, how might Riverstone’s business performance change if and when the ringgit starts recovering? Currency swings are not easily predictable and Riverstone’s investors might need to cater for the possibility of the ringgit moving in a direction that’s not in their favour.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn't own shares in any companies mentioned.