An Investor’s Look At Riverstone Holdings Limited

Riverstone Holdings Limited (SGX: AP4) is a company operating in two key areas of the rubber gloves industry: Cleanroom gloves and medical gloves.

Making rubber gloves may not sound like an exciting business, but Riverstone has become a great market-beating stock on the back of it. Since the close of its first day of trading on November 2006, Riverstone’s shares have jumped by 487% in price alone. In contrast, the Straits Times Index (SGX: ^STI) is basically flat over the same time frame.

Let’s take a closer look at the business of Riverstone.

The competitors

If you were to perform a quick search for close competitors of Riverstone in the Singapore stock market, you would most likely come up with nothing. That’s because its main competitors are listed outside of Singapore.

In the cleanroom gloves business, Riverstone competes mainly with Australia-listed Ansell Limited and U.S.-listed Kimberly Clark Corp. As for the medical gloves side of things, most of Riverstone’s competitors are actually listed on Bursa Malaysia, the stock exchange of Malaysia.

Given that Riverstone is actually based in Malaysia, having competitors in Malaysia’s stock market is not a surprising thing. In fact, Riverstone, with its current market value of S$685 million, is actually one of the smaller glove manufacturers in Malaysia. Riverstone’s largest competitors in the medical gloves business are Hartalega Holdings Berhad (KLSE:5168.KL) and Top Glove Corporation Bhd (KLSE:7113.KL). Both are listed in Malaysia and they currently have market caps of RM7.3 billion (S$2.4 billion) and RM6.1 billion (S$2.0 billion), respectively.

There are other aspects of Hartalega and Top Glove which dwarfs Riverstone. At the end of 2015, Riverstone had an annual production capacity of 5.2 billion gloves. In comparison, Hartalega can produce over thrice as many gloves in a year with its capacity of 16 billion. Still larger is Top Glove – the company claims to be the world’s largest rubber gloves manufacturer with its production capacity of 45 billion gloves a year.

Riverstone’s competitive advantage

It’s easy to imagine that glove-manufacturing is a commodity-like business whereby the company with the largest scale has a strong advantage over its competitors. But, that does not seem to be the case here. Interestingly, Riverstone has better gross and net margins than Hartalega and Top Glove despite being much smaller in size.

Riverstone, Hartalega, Top Glove
Source: S&P Global Market Intelligence

This might be due to Riverstone’s competitive advantage in its cleanroom gloves segment, which commands a much higher profit margin than the medical gloves business. So, in the case of Riverstone, it seems like size might not matter that much.

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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.