How Did Riverstone Holdings Limited Perform in the First Quarter of 2018?

Riverstone Holdings Limited (SGX:AP4) has certainly been one of Singapore’s star growth stocks.

The company’s revenue has almost doubled from S$151 million in 2014 to S$278 million in 2017. Likewise, earnings per share have grown from 2.6 Singapore cents to 4.1 Singapore cents over the same time frame.

Last week, the company announced its results for the first quarter of 2018. Did Riverstone repeat its past performances?

Brief introduction

As a quick introduction, Riverstone is a manufacturer of cleanroom and healthcare gloves. It is based in Malaysia and its products include both latex and free nitrile products.

The company is one of the smaller players in the rubber glove market. However, due to its niche expertise in cleanroom gloves, it has been able to grow its sales and maintain a higher profit margin than its bigger competitors.

Revenue grows but foreign exchange fluctuations affect profit

Driven by growth in demand and a higher manufacturing capacity, revenue for the quarter increased by 2% to RM209.8 million from RM205.7 million a year ago. However, due to an increase in gas input prices and foreign currency fluctuations, gross profit declined by 9.5% to RM46.9 million from RM51.8 million.

Consequently, the group’s gross profit margin declined 2.9 percentage points to 22.3%. Overall, the group reported that profit after tax declined 7.6% to RM31.1 million from RM33.6 million. Earnings per share, likewise, dropped 7.7% to RM4.19 sen from RM4.54 sen in the same period last year.

Despite the decrease in net profit, the company still generated strong positive operating cash flow of RM43.5 million during the quarter. This was an improvement of RM3 million or 7.5% from a year ago. The group spent RM19.5 million on investments to expand its capacity. All in, the group generated strong postive free cash flow of RM24 million.

Healthy financial position

The group also maintained a very healthy balance sheet with total assets valued at RM410 million and total liabilities of RM280 million. Net assets rose to RM661.9 million from RM 632 million a year ago.

As of 31 March 2018, Riverstone had borrowings of just RM23.5 million and cash or cash equivalents of RM135 million. The group, therefore, had a strong net cash position of RM111.6 million.

What the management said

Executive chairman and chief executive of Riverstone, Wong Teek Son, said:

“While encouraged by the strong demand in key markets for our premium healthcare and cleanroom gloves, we were impacted by the macroeconomic headwinds weighing on our industry in the form of foreign exchange rate volatility. Nevertheless, we remain in growth mode. Our operations are robust as we continue to maintain high utilisation rates which reinforce the need for continued expansion initiatives.”

Looking ahead

With the added production lines maintaining high utilisation rates, the group plans to continue ramping up its capacity. The management has said that the “Phase 5 expansion plan” is on track and the group will achieve a total production capacity of nine billion gloves by end of this year. In addition, the group plans to increase its production capacity further by another 1.4 billion gloves by the end of 2019, giving the group a total production capacity of 10.4 billion gloves annually. This represents a 36.8% growth rate over the next two years.

However, the group did warn that it expects foreign currency and raw material price fluctuations to continue to pose challenges in the near-term.

At the time of writing, shares of Riverstone traded at S$1.00 per piece. The shares had a price-to-book ratio of 3.3, an annualised price-to-earnings ratio of 17.7 and a trailing distribution yield of 2.4%.

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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, Jeremy Chia, owns shares in Riverstone Holdings Limited.