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The Better Buy: Top Glove Ltd or Riverstone Holdings Limited?

There are around 700 companies listed on the stock exchange in Singapore. Out of those, there are a number of companies that have similar business operations. It is sometimes hard to determine which company in a particular industry is better than its peers.

In this article, we will make some quick-and-dirty comparisons between two companies operating in the glove manufacturing industry, Top Glove (SGX: BVA) and Riverstone Holdings Limited (SGX: AP4), to determine which might give you more bang for the buck.

Introducing the Contenders

Top Glove prides itself on being the world’s largest rubber glove manufacturer, catering to the medical, food and general industrial sectors. It was founded in 1991 and has a primary listing on Malaysia’s stock market, Bursa Malaysia. It was dual-listed here in June 2016.

The company’s in-house brands include Top Glove, TG Medical, Great Glove, Masterguard and Top Care.

Top Glove is currently constructing two new manufacturing facilities, which will be operational by December 2018. Upon completion, the company’s production capacity will increase by 7.8 billion gloves per year. By the end of 2018, Top Glove is expected to have 31 glove factories, 628 production lines and a total annual production capacity of 59.7 billion gloves.

Moving on, Riverstone Holdings was started in 1989. The company manufactures healthcare gloves, nitrile gloves, finger cots, face masks, and packaging bags. Its products are widely used in industries like healthcare, semiconductors, manufacturing, biotechnology and pharmaceutical.

In 2016, its annual production capacity was 6.2 billion pieces. The capacity is expected to rise to 7.6 billion pieces this year, and to 10.4 billion pieces in 2019.

The table below shows the market capitalisation and revenue for the two firms. Market capitalisation is as of the closing prices on 4 December 2017.

Do note that all figures quoted in the tables that follow are for the full year ended 31 August 2017 (FY2017) for Top Glove and full year ended 31 December 2016 (FY2016) for Riverstone Holdings Limited, unless otherwise stated.

  Top Glove Riverstone Holdings Limited
Market Capitalisation S$2.72 billion S$755.9 million
Revenue RM3.41 billion RM654.9 million

  Round 1: Profitability

In the first round, we will analyse the profitability of the companies in terms of profit margins and Return on Equity (ROE). The ROE figure reveals how efficient the management is in turning every dollar of shareholders’ capital into profits.

  Top Glove Riverstone Holdings Limited
Gross Margin 17.8% 26.4%
Net Margin 9.6% 18.4%
ROE 16.4% 21.7%

For every dollar of revenue created by Top Glove, only around 10 cents was generated as profits but for Riverstone, every dollar of revenue gave 18 cents in profits. This shows that Riverstone is more profitable than its counterpart. Furthermore, Riverstone has a much higher ROE than Top Glove.

Winner: Riverstone is the clear winner.

Round 2: Growth

In the second round, we will compare the compounded annual growth rate (CAGR) of revenue, earnings per share (EPS) and dividend of the two firms for the past five financial years. Firms that can grow their sales and profits steadily over time should also see their share price rise.

  Top Glove Riverstone Holdings Limited
Revenue CAGR 10.2% 20.6%
EPS CAGR 12.9% 27.7%
Dividend CAGR 16.0% 2.0%

Riverstone has trounced Top Glove in all aspects, except for dividend CAGR. Even then, its revenue and EPS CAGRs are commendable.

Winner: Riverstone.

Round 3: Valuation

As Foolish investors, it is essential to focus on the value of the business and not on the daily changes in the stock price.

We will now compare the price-to-earnings (PE) ratio, price-to-sales (PS) ratio and dividend yield of the two companies. The values below are as of the closing prices on 4 December 2017.

  Top Glove Riverstone Holdings Limited
PE Ratio 25.1 19.0
PS Ratio 2.4 3.5
Dividend Yield 2.2% 2.1%
Share Price S$2.17 S$1.02

Top Glove has a lower PS ratio and slightly higher dividend yield than Riverstone. However, Riverstone offers better value in terms of PE.

Winner: Top Glove, with its better PS ratio and dividend yield.

The Foolish Bottom Line

Final Score: 2-1 to Riverstone, as it triumphed Top Glove in two out of the three rounds.

However, we have yet to look at other important aspects of the companies such as the balance sheet strength, free cash flow situation, management’s integrity, and so on. Potential investors interested in Riverstone should research more on the company before investing their money. This simple exercise would help to take some heavy-lifting off your back though.

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Editor's note: An error to the date of the closing prices has been corrected. 

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Riverstone Holdings Limited. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.